The Bias Associated with New Mutual Fund Returns
58 Pages Posted: 15 Jan 2002
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: Suggested Citation
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