The Bias Associated with New Mutual Fund Returns

58 Pages Posted: 15 Jan 2002

See all articles by Craig H. Wisen

Craig H. Wisen

University of Alaska Fairbanks - School of Management (SOM)

Date Written: January 2002

Abstract

Mutual funds that were less than five years old represented approximately 38% of the open-end mutual fund population as of December 31, 1999. This study's primary research question examines whether the initial returns of mutual funds are biased. The implications of this study are that inferences about the stock-picking ability of small-cap growth, mid-cap growth, and high-yield bond fund managers are more likely to be overstated for new funds than seasoned funds. The most likely sources of the new fund return bias estimated during the period 1994 through 1999 include incubation, favoritism, and higher termination rates of new funds relative to seasoned funds.

Keywords: Mutual funds, favoritism, incubation, stock-picking ability, inferences, initial returns

JEL Classification: G10, G14, G20, G23

Suggested Citation

Wisen, Craig Hanes, The Bias Associated with New Mutual Fund Returns (January 2002). Available at SSRN: https://ssrn.com/abstract=290463 or http://dx.doi.org/10.2139/ssrn.290463

Craig Hanes Wisen (Contact Author)

University of Alaska Fairbanks - School of Management (SOM) ( email )

P.O. Box 756080
Fairbanks, AK 99775-0500
United States