Is Mutual Fund Promotion Bittersweet? Evidence from Chinese Mutual Funds

Abstract

From the aspect of investor attention, fund promotion can enhance fund visibility, repeated reference and brand fame. This study tests whether fund promotion is bittersweet to the mutual fund industry, i.e., driving down the abnormal return earned by smart money (dubbed as the smart money erosion hypothesis) on the one hand and enticing fund managers to employ promotion strategies to attract new customers, boost market share, and achieve fund market dominance (dubbed as the market dominance hypothesis) on the other hand. Using a unique and comprehensive dataset of Chinese mutual funds during 2004-2010, we find empirical evidence for both hypotheses.