An Empirical Analysis of Spillover Effect of Open-End Fund Industry

We use multiple regression models to analyze the impact of the performance of an open-end fund on the capital inflow of the fund itself and other funds in the same fund family. The empirical study starts from the analysis of correlation of capital inflows of all funds under the same fund management company, and is designed to test whether the good performance of a fund will attract new external investment, or in other words, whether the spill over effect exists. We found that the star fund of star fund management company could not attract more capital inflow from investors, compared with other funds, which indicates that there is no spill over effect in open-end fund industry in China. The result is reinforced by our test of robustness. We also proposed that the reasons for the nonexistence of spill over effect might lie in the instability of the performance, relatively high quit rate of fund managers, dilemma of redemption, and policy of temporary suspension of purchase.