A Study on the Spillover Effect of Star Fund on Sibling Funds and Family Funds

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This paper studies the spillover effect of star funds in the Chinese mutual fund market. I show that star funds can attract more capital inflows to their sibling funds (managed by same fund manager) and family funds (managed by same

This paper studies the spillover effect of star funds in the Chinese mutual fund market. I show that star funds can attract more capital inflows to their sibling funds (managed by same fund manager) and family funds (managed by same fund company). The spillover effect is stronger for sibling funds.Further, I propose two mechanisms of spillover effect of star funds. The first mechanism is related to investors’ limited attention and ability. Star funds can easily attract investors’ attention among numerous fund products. The high degree of attention of star funds makes their related funds (e.g., family funds and sibling funds) get more attention, thus attracting more capital flows. I show that the spillover effect of star funds to their sibling funds is stronger among funds with a higher proportion of individual investors. Due that individual investors are more limited in attention and more easily pay attention to sibling funds, the result thus verifies the mechanism to a certain extent. The second mechanism is about performance correlation. Investors choose sibling or family funds of star funds because they expect their future performance to be as excellent as that of star funds. I find that the performance correlation between sibling funds and star funds is stronger than that between family funds and star funds. Combined with the result that the spillover effect of star funds on sibling funds is stronger than that on family funds, it verifies the mechanism to some extent. This paper is of great significance for understanding the spillover effect of star funds.
Date Created
2023
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