Madison Avenue Meets Wall Street: Mutual Fund Families, Competition and Advertising

We examine the effects of mutual fund families' strategic decisions, particularly the advertising decision, on investor flows into the families. We find evidence that beyond performance a family's strategic decisions such as advertising, distribution channels, fund offerings and expense ratios, have significant effects on investor flows. Consistent with evidence at the individual fund level, investor flows have an increasing and convex relation to a family's past performance for high performing families. We also find a similar association between a family's flows and its relative levels of advertising expenditures with a significant positive effect for high relative advertisers only.

[1]  Kyle Bagwell,et al.  Coordination Economies, Advertising, and Search Behavior in Retail Markets , 1994 .

[2]  P. Nelson.  Information and Consumer Behavior , 1970, Journal of Political Economy.

[3]  Vikram Nanda,et al.  The Abcs of Mutual Funds: A Natural Experiment on Fund Flows and Performance , 2003 .

[4]  M. Spiegel,et al.  A Theory of Mutual Funds: Optimal Fund Objectives and Industry Organization , 2001 .

[5]  Martin J. Gruber,et al.  Another puzzle: the growth in actively managed mutual funds , 1996, Annals of Operations Research.

[6]  Edwin J. Elton,et al.  Are Investors Rational? Choices Among Index Funds , 2002 .

[7]  R. C. Merton,et al.  Presidential Address: A simple model of capital market equilibrium with incomplete information , 1987 .

[8]  A. Kempf,et al.  Family Matters: The Performance Flow Relationship in the Mutual Fund Industry , 2004 .

[9]  P. Burridge,et al.  A Very Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix , 1991 .

[10]  E. Fama,et al.  Risk, Return, and Equilibrium: Empirical Tests , 1973, Journal of Political Economy.

[11]  Roger M. Edelen.  Investor flows and the assessed performance of open-end mutual funds , 1999 .

[12]  J. Golec.  Regulation And The Rise In Asset‐Based Mutual Fund Management Fees , 2003 .

[13]  Paul R. Milgrom,et al.  Price and Advertising Signals of Product Quality , 1986, Journal of Political Economy.

[14]  W. Baumol.  The Economics of Mutual Fund Markets: Competition Versus Regulation , 1989 .

[15]  Tarun Chordia.  The Structure of Mutual Fund Charges , 1996 .

[16]  Lu Zheng,et al.  Out of Sight, Out of Mind: The Effects of Expenses on Mutual Fund Flows , 2003 .

[17]  Jerold B. Warner,et al.  Aggregate Price Effects of Institutional Trading: A Study of Mutual Fund Flow and Market Returns , 2001 .

[18]  Jason T. Greene,et al.  The Dilution Impact of Daily Fund Flows on Open-End Mutual Funds , 2000 .

[19]  Randall L. Schultz,et al.  A Study of Marketing Generalizations , 1980 .

[20]  Avanidhar Subrahmanyam,et al.  Brand Perceptions and the Market for Common Stock , 2001 .

[21]  Ronald T. Wilcox.  Bargain Hunting or Star Gazing? Investors' Preferences for Stock Mutual Funds , 2003 .

[22]  Evren Ors,et al.  Advertising and Pricing at Multiple Output Firms: Evidence from U.S. Thrift Institutions , 2004 .

[23]  Stefan Ruenzi,et al.  Tournaments in Mutual Fund Families , 2005 .

[24]  C. Peake.  The Impact of Mutual Fund Family Membership on Investor Risk , 2007 .

[25]  Paula A. Tkac.  Mutual funds: temporary problem or permanent morass? , 2004 .

[26]  M. Blume,et al.  An Anatomy of Morningstar Ratings , 1998 .

[27]  S. Klein.  How Do Family Strategies Affect Fund Performance? When Performance-Maximization Is Not the Only Game in Town , 2003 .

[28]  P. Nelson.  Advertising as Information , 1974, Journal of Political Economy.

[29]  David K. Musto,et al.  How Investors Interpret Past Fund Returns , 2000 .

[30]  Charles M. C. Lee,et al.  Earnings news and small traders : An intraday analysis , 1992 .

[31]  M. Lettau.  Explaining the facts with adaptive agents: The case of mutual fund flows , 1997 .

[32]  S. Christoffersen.  Why Do Money Fund Managers Voluntarily Waive Their Fees , 2001 .

[33]  Brad M. Barber,et al.  All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors , 2006 .

[34]  W. Newey,et al.  A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelationconsistent Covariance Matrix , 1986 .

[35]  A. Khorana,et al.  The Determinants of Mutual Fund Starts , 1999 .

[36]  René M. Stulz,et al.  Working Paper Series the Determinants of the Flow of Funds of Managed Portfolios: Mutual Funds versus Pension Funds the Determinants of the Flow of Funds of Managed Portfolios: Mutual Funds versus Pension Funds , 2022 .

[37]  Henrik Cronqvist,et al.  Advertising and Portfolio Choice , 2006 .

[38]  Vincent A. Warther,et al.  Liquidity, Investment Ability, and Mutual Fund Structure , 1997 .

[39]  Russ Wermers,et al.  Is Money Really 'Smart'? New Evidence on the Relation between Mutual Fund Flows, Manager Behavior, and Performance Persistence , 2003 .

[40]  Richard A. Ippolito.  Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry , 1992, The Journal of Law and Economics.

[41]  Paula A. Tkac,et al.  Star power: the effect of Morningstar ratings on mutual fund flows , 2001 .

[42]  Melissa B. Frye.  THE PERFORMANCE OF BANK‐MANAGED MUTUAL FUNDS , 2001 .

[43]  Peter Tufano,et al.  Costly Search and Mutual Fund Flows , 1998 .

[44]  J. Tirole.  The Theory of Industrial Organization , 1988 .

[45]  F. Fehle,et al.  Can Companies Influence Investor Behaviour Through Advertising? Super Bowl Commercials and Stock Returns , 2005 .

[46]  William N. Goetzmann,et al.  COGNITIVE DISSONANCE AND MUTUAL FUND INVESTORS , 1997 .

[47]  R. Kihlstrom,et al.  Advertising as a Signal , 1984, Journal of Political Economy.

[48]  N. Capon,et al.  An individual level analysis of the mutual fund investment decision , 1996 .

[49]  Massimo Massa,et al.  Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization , 2004 .

[50]  Glenn Ellison,et al.  Risk Taking by Mutual Funds as a Response to Incentives , 1995, Journal of Political Economy.

[51]  Gustavo Grullon,et al.  Advertising, Breadth of Ownership, and Liquidity , 2004 .

[52]  Woodrow T. Johnson.  Predictable Investment Horizons and Wealth Transfers Among Mutual Fund Shareholders , 2003 .

[53]  M. Hirschey,et al.  Advertising, R&D Expenditures and the Market Value of the Firm , 1993 .

[54]  Vikram Nanda,et al.  Family Values and the Star Phenomenon , 2003 .

[55]  Nicolaj Siggelkow,et al.  Why Focus? A Study of Intra-Industry Focus Effects , 1998 .

[56]  A. Khorana,et al.  An Analysis of the Determinants and Shareholder Wealth Effects of Mutual Fund Mergers , 2001 .

[57]  F SharpeWilliam,et al.  Morningstar's Risk-Adjusted Ratings , 1998 .

[58]  E. Elton,et al.  The Impact of Mutual Fund Family Membership on Investor Risk , 2004, Journal of Financial and Quantitative Analysis.

[59]  David K. Musto,et al.  Demand Curves and the Pricing of Money Management , 1999 .

[60]  Joanna S. Wu,et al.  Truth in mutual fund advertising: Evidence on future performance and fund flows , 2000 .