Article2012

The Performance of Investment Bank-Affiliated Mutual Funds: Conflicts of Interest or Informational Advantage?

77 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Abstract

Abstract Using a comprehensive sample of U.S. mutual funds from 1992 to 2004, we find strong evidence that investment bank-affiliated funds underperform unaffiliated funds. Consistent with the conflict of interest hypothesis, we find that affiliated funds hold disproportionately large amounts of stocks of their initial public offering and seasoned equity offering clients. Moreover, worse-performing clients are more likely to be held by affiliated funds. Our results are robust to alternative risk adjustments, portfolio weighting schemes, and regression methodologies. Overall, our findings are consistent with the idea that investment banks use affiliated funds to support underwriting business at the expense of fund shareholders.

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References

1993Common risk factors in the returns on stocks and bonds 1997On Persistence in Mutual Fund Performance 1973Risk, Return, and Equilibrium: Empirical Tests 1993Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency 1968THE PERFORMANCE OF MUTUAL FUNDS IN THE PERIOD 1945–1964 1995The New Issues Puzzle 1997Measuring Mutual Fund Performance with Characteristic‐Based Benchmarks 1990Initial Public Offerings and Underwriter Reputation

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