Changing names with
style: Mutual fund name changes and their effects on
fund flows
Mike Cooper, Huseyin Gulen and P. Raghavendra Rau
Purdue University, Virginia Tech and Purdue University
We investigate the effects of conditional name changes
in the mutual fund industry. Specifically, we examine
if mutual funds change their names to take advantage
of the current "hot" investment styles, and what effects
these name changes have on the flows in and out of the
funds, and the to funds' subsequent returns. We find
that name changes tend to occur in waves; funds tend
to change their name to be associated with the current
high return style and to disassociate themselves from
the current low return styles. The year before a fund
changes its name to reflect a current hot style or to
move away from a current "cold" style, the fund experiences
an average excess outflow of approximately -4%. The year
after the name change these funds earn average cumulative
excess flows of 28% and experience no increase in performance
compared to their pre-name change performance. The increase
in flows is similar across funds that change their underlying
investment style and those that do not, adding support
to a growing body of literature that documents that investors
are "irrationally" influenced by cosmetic effects.
This paper has been presented at the
- Helsinki
School of Economics, Helsinki, Finland, September
2003;
- Swedish
School of Economics and Business Administration,
Helsinki, Finland, September 2003;
- Western
Finance Association Meetings, Los Cabos, 2003;
- ISCTE ,
Lisbon, Portugal, May 2003;
- Faculdade di Economia
do Porto, Porto, Portugal, May 2003;
- University
of Illinois Conference on Bear Markets Seminar,
December 2002.
It has been referenced in
Download
this paper |
