Spillover Effects of Marketing in Mutual Fund Families∗

This paper investigates the presence of spillover effects of marketing in mutual fund families. We find that funds with high marketing expenses generate spillovers, and enhance cash inflows to family members with low marketing expenses. In partic-ular, low-marketing funds that are operated by a family with high marketing expenses have substantially larger inflows after positive returns than otherwise similar funds that are operated by a family with low marketing expenses, while they have smaller outflows after negative returns. One way to interpret the spillovers is that they are a by-product of individual fund marketing whereby the entire family is made more visible to investors. An alternative explanation of this observation is that funds with low marketing expenses are directly subsidized by family members with high market-ing expenses. We develop and perform a set of tests to evaluate these two alternative hypotheses. The results of all tests support the subsidization hypothesis, and sug-gest that at least part of the spillovers can be attributed to favoritism. These results suggest that conflicts of interest between investors and fund families have been ex-acerbated by competition in the mutual fund industry