Most mutual funds belong to fund families. The authors propose to investigate the impact of family structure on fund strategy to attract investor funds and, in turn, the effect of such strategies on the size and nature of the fund family. Preliminary results indicate that there is a strong positive spillover effect of a star performer, resulting in higher cash inflow for other funds in the family as well. A family can raise the probability of obtaining a star performer by increasing family size and making the fund returns more negatively correlated. Factors that increase the odds of producing a star are also ones associated with a lower average performance.
Investors thus treat buying and selling asymmetrically.
The proposed paper will test whether attention drives buying. One event likely to capture investors' attention is a large price move, either positive or negative. The financial pages report such moves daily and they are often associated with related news stories. Individual investors therefore should tend to be net buyers of stocks with large recent price changes. Earnings announcements also focus attention on stocks.