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

59 Pages Posted: 13 Apr 2011

See all articles by Grace Qing Hao

Grace Qing Hao

Department of Finance and Real Estate, The University of Texas at Arlington

Xuemin Sterling Yan

University of Missouri - Columbia

Date Written: February 14, 2011

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 IPO and SEO 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.

Keywords: Mutual fund performance, Investment bank affiliated mutual funds, Investment banking relationships

JEL Classification: G23, G24, G11

Suggested Citation

Hao, Grace Qing and Yan, Xuemin Sterling, The Performance of Investment Bank Affiliated Mutual Funds: Conflicts of Interest or Informational Advantage? (February 14, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1808074

Grace Qing Hao (Contact Author)

Department of Finance and Real Estate, The University of Texas at Arlington ( email )

701 S. West Street
Arlington, TX 76019
United States

Xuemin Sterling Yan

University of Missouri - Columbia ( email )

Robert J. Trulaske Sr. College of Business
427 Cornell Hall
Columbia, MO 65211-2600
United States
573-884-9708 (Phone)
573-884-6296 (Fax)

HOME PAGE: http://business.missouri.edu/yanx/

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