Star Phenomenon and Spillover Effects within Mutual Fund Families: - A study in China’s mutual fund industry

Abstract: This paper examines Chinese investors’ preferences for star funds and further tests whether Chinese fund families benefit from star funds’ spillover effects at the family level. The empirical results indicate that neither the star phenomenon nor spillover effects within star families exist in China’s mutual fund industry. Specifically, star funds are not rewarded with more money inflows by their previous outstanding performance. Moreover, star funds could not benefit non-star funds within the same families with greater money inflows. The findings may suggest that employing a strategy in creating a star fund might not be considered a wise approach in maximizing families’ market coverage. Possible reasons underlying the results have been provided in the paper. Further, this paper finds evidence that fund families’ sales promotion and the fund share dilution plan are the effective strategies in generating more money inflows to funds or families.