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Closing and cloning in open-end mutual funds

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Title: Closing and cloning in open-end mutual funds
Author(s): Chen, Hsiu-Lang; Gao, Sheldon; Hu, Xiaoqing
Abstract: Using a unique dataset, we document that only those closed funds for which no new fund is subsequently launched continuously deliver positive abnormal returns. This suggests the existence of an optimal fund scale. In spite of the potential diseconomies of scale, a non-trivial proportion of closed funds have new funds cloned—the scale motive would not be a complete explanation for the closure. When managers of closed funds clone new funds, they receive greater public attention and thus can attract more fund flows and charge higher fees. Furthermore, better-performing closed fund managers attract more fund flows to their new siblings, making the closure an effective mechanism to extract economic rents. Overall, we find that closing and cloning is an attractive strategy for funds seeking to increase their management fees and funds with more managers in place. Aspects of the closed fund family also affect the launch decision of new siblings.
Issue Date: 2012-04
Publisher: Elsevier
Citation Info: Chen, H. L., Gao, S., & Hu, X. Q. 2012. Closing and cloning in open-end mutual funds. Journal of Banking & Finance, 36(4): 1210-1223. http://dx.doi.org/10.1016/j.jbankfin.2011.11.010
Type: Article
Description: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, [Vol 36, Issue 4, (April 2012)] http://dx.doi.org/10.1016/j.jbankfin.2011.11.010
URI: http://hdl.handle.net/10027/8522
ISSN: 0378-4266
Date Available in INDIGO: 2012-08-17
 

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