Fund selection in target date funds

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

    Research output: Contribution to journalArticlepeer-review

    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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