New Insights into Mutual Funds: Performance and Family Strategies


Joop Huij
  • Speaker
Rotterdam School of Management (RSM), Erasmus University Rotterdam

Event Information

Type
PhD Defence
Programme
Finance
Date
Thu. 8 Mar. 2007
Contact
Time
13:30 hours
E-mail
Location
Senate Hall, Woudestein
Number


Abstract

New Insights into Mutual Funds is a bundle of four empirical studies on mutual funds. In the first two papers, we investigate persistence in risk-adjusted fund returns. We show that the returns of both equity and bond mutual funds are persistent. Funds that display strong (weak) performance over a past period continue to do so in future periods. More importantly, we demonstrate that some fund managers are able to outperform a strategy that invests in passive indexes for a short period of time. These results add new insights to long-running debates on the benefits of actively managed funds vis-à-vis passive portfolios. In the third paper, we test the cross-sectional explanatory power of multi-factor models to explain mutual fund returns. We find that performance estimates resulting from these models are biased because the factor proxies do not incorporate transaction costs and trading restrictions. We suggest that factor proxies based on mutual fund returns rather than stock returns provide better benchmarks to evaluate professional money managers. Finally, in the fourth paper we investigate the impact of fund marketing on investor flows to other funds in the family. We find that high-marketing funds generate spillovers, and enhance cash inflows to low-marketing funds in the family. An explanation of this observation is that funds with low marketing expenses are directly subsidized by family members with high marketing expenses. Our results indicate that at least part of the spillovers can be attributed to favoritism. These findings suggest that conflicts of interest between investors and fund families have been exacerbated by competition in the mutual fund industry.
 
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Contact information:
Olga Novikova
Email
Marno Verbeek
Professor of Finance, Scientific Director ERIM, Dean of Research RSM
  • Promotor
Nicolas Bollen
Nicolas Bollen
  • Member Doctoral Committee
Kees Koedijk
Kees Koedijk
  • Member Doctoral Committee
Miles Livingston
  • Member Doctoral Committee
Olga Novikova
  • Coordinator