Why do Fund Families Release Underperforming Incubated Mutual Funds?
Although the average incubated mutual fund outperforms non-incubated funds by up to 3.41% annually, a large number of released funds underperform during incubation. We find that launching underperforming incubated mutual funds is associated with objectives that are attracting large inflows and lower relative risk. These findings are consistent with the use of incubation to maximize fee revenue through means other than the flow-to-performance relationship. We also find that underperforming incubated funds are incubated longer, suggesting that families release funds opportunistically to take advantage of outperformance when it is observed.
Shirley, S.E., & Stark, J.R. (2016). Why do Fund Families Release Underperforming Incubated Mutual Funds? Financial Management, 45(3), 507-528. https://doi.org/10.1111/fima.12103
Virtual Commons Citation
Shirley, Sara E. and Stark, Jeffrey R. (2016). Why do Fund Families Release Underperforming Incubated Mutual Funds?. In Accounting and Finance Faculty Publications. Paper 4.
Available at: http://vc.bridgew.edu/accounting_fac/4