Fund selection in target date funds

Chia Ying Chan, Hsuan Chi Chen, Yu Hsuan Chiang, Christine W. Lai

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study investigates the family-fund strategy in target date funds (TDFs). We find that fund families often create TDFs by bundling existing mutual funds and use TDFs to increase non-performance-related flows to constituent funds that are not competitive. Such incremental non-performance-related flows exceed 1% of total net assets on a monthly basis. We further investigate the potential monitoring effect of plan sponsors by examining the association between the characteristics of constituent funds and their likelihood of staying in the TDFs. We find that constituent funds with lower return performance or younger age exhibit a lower survival probability of continuing as part of a TDF. Therefore, the problem of potential agency cost at the selection point of the constituent funds may be mitigated to some extent after entering TDFs.

Original languageEnglish
Pages (from-to)197-209
Number of pages13
JournalNorth American Journal of Economics and Finance
Volume39
DOIs
Publication statusPublished - 2017 Jan 1

Keywords

  • Family-fund strategy
  • Fund family
  • Performance
  • Target date funds

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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