Cargando…

The paradox of closing mutual funds to new investors

I provide an explanation for the well-established paradox that mutual funds that close to new investors fail to maintain their pre-closure positive abnormal performance after closing. Using a large sample of active US equity mutual funds, I find that the within-style performance ranks of closed fund...

Descripción completa

Detalles Bibliográficos
Autor principal: Covachev, Svetoslav
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Public Library of Science 2023
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10501617/
https://www.ncbi.nlm.nih.gov/pubmed/37708122
http://dx.doi.org/10.1371/journal.pone.0290254
_version_ 1785106149745360896
author Covachev, Svetoslav
author_facet Covachev, Svetoslav
author_sort Covachev, Svetoslav
collection PubMed
description I provide an explanation for the well-established paradox that mutual funds that close to new investors fail to maintain their pre-closure positive abnormal performance after closing. Using a large sample of active US equity mutual funds, I find that the within-style performance ranks of closed funds revert to the mean as strongly as those of a control group of open funds. Furthermore, I show that funds that are closed do not drastically alter their investment allocations and hold portfolios that are indistinguishable from their portfolios prior to closing in terms of risk-adjusted performance. Therefore, mean reverting stock returns explain the deterioration in fund performance after closing to new investors. I also document that funds are not capable of better preserving their assets when anticipating a decline in performance by closing to new investors and thus adding exclusivity. Furthermore, the control group of open funds does not suffer from excessive flows. Closing to new investors is at best unnecessary from the stand-alone perspective of the fund.
format Online
Article
Text
id pubmed-10501617
institution National Center for Biotechnology Information
language English
publishDate 2023
publisher Public Library of Science
record_format MEDLINE/PubMed
spelling pubmed-105016172023-09-15 The paradox of closing mutual funds to new investors Covachev, Svetoslav PLoS One Research Article I provide an explanation for the well-established paradox that mutual funds that close to new investors fail to maintain their pre-closure positive abnormal performance after closing. Using a large sample of active US equity mutual funds, I find that the within-style performance ranks of closed funds revert to the mean as strongly as those of a control group of open funds. Furthermore, I show that funds that are closed do not drastically alter their investment allocations and hold portfolios that are indistinguishable from their portfolios prior to closing in terms of risk-adjusted performance. Therefore, mean reverting stock returns explain the deterioration in fund performance after closing to new investors. I also document that funds are not capable of better preserving their assets when anticipating a decline in performance by closing to new investors and thus adding exclusivity. Furthermore, the control group of open funds does not suffer from excessive flows. Closing to new investors is at best unnecessary from the stand-alone perspective of the fund. Public Library of Science 2023-09-14 /pmc/articles/PMC10501617/ /pubmed/37708122 http://dx.doi.org/10.1371/journal.pone.0290254 Text en © 2023 Svetoslav Covachev https://creativecommons.org/licenses/by/4.0/This is an open access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/) , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
spellingShingle Research Article
Covachev, Svetoslav
The paradox of closing mutual funds to new investors
title The paradox of closing mutual funds to new investors
title_full The paradox of closing mutual funds to new investors
title_fullStr The paradox of closing mutual funds to new investors
title_full_unstemmed The paradox of closing mutual funds to new investors
title_short The paradox of closing mutual funds to new investors
title_sort paradox of closing mutual funds to new investors
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10501617/
https://www.ncbi.nlm.nih.gov/pubmed/37708122
http://dx.doi.org/10.1371/journal.pone.0290254
work_keys_str_mv AT covachevsvetoslav theparadoxofclosingmutualfundstonewinvestors
AT covachevsvetoslav paradoxofclosingmutualfundstonewinvestors