Mutual Fund Incubation

Incubation is a strategy for initiating new funds, where multiple funds are started privately, and, at the end of an evaluation period, some are opened to the public. Consistent with incubation being used by fund families to increase performance and attract flows, funds in incubation outperform noni...

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Bibliographic Details
Published in:The Journal of finance (New York) 2010-08, Vol.65 (4), p.1581-1611
Main Author: EVANS, RICHARD B.
Format: Article
Language:English
Subjects:
Asset management
Bias
Financial investments
Fund management
Investment funds
Investment planning
Investment returns
Investment strategies
Investment trusts
Investors
Mutual funds
Portfolio management
Portfolio performance
Rates of return
Statistical median
Statistical results
Statistical significance
Studies
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Summary:Incubation is a strategy for initiating new funds, where multiple funds are started privately, and, at the end of an evaluation period, some are opened to the public. Consistent with incubation being used by fund families to increase performance and attract flows, funds in incubation outperform nonincubated funds by 3.5% risk-adjusted, and when they are opened to the public they attract higher flows. Postincubation, however, this outperformance disappears. This performance reversal imparts an upward bias to returns that is not removed by a fund size filter. Fund age and ticker creation date filters, however, eliminate the bias.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2010.01579.x