Skip to main content
SpringerLink
Log in

Mutual Fund Incubation and the Role of the Securities and Exchange Commission

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

A mutual fund family incubates a fund when it creates a privately subsidized fund not available to the general investing public. It destroys unsuccessful incubator funds. The few successful funds will report higher incubation returns than the market return in advertisements intended to attract money from individual investors. This practice is currently allowed by the SEC. The evidence is that incubation returns are not a good predictor of subsequent fund performance and likely serve to mislead unsuspecting investors.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Bogle, J.: 2004, ‘Mutual Funds in the Coming Century ... While We’re at it, Let’s Build a Better World,’ Speech at the Mutual Fund Regulation and Compliance Conference, May 5, 2004 (available at: http://www. sec.gov/rules/proposed/s70304/s70304-175.pdf)

  • Brown S., Goetzmann W. (1997), Mutual Fund Styles. Journal of Financial Economics 42:373–399

    Article  Google Scholar 

  • Carhart M (1997), On Persistence in Mutual Fund Performance. Journal of Finance 52:57–82

    Article  Google Scholar 

  • Elton E., Gruber M., Rentzler J. (1989) New Public Offerings, Information, and Investor Rationality: The Case of Publicly Offered Commodity Funds. Journal of Business 62:1–15

    Article  Google Scholar 

  • Evans, R.: 2004, ‘Does Alpha Really Matter? Evidence from Mutual Fund Incubation, Termination and Manager Change’, Boston College

  • Houge T., Wellman J. (2005) Fallout from the Mutual Fund Trading Scandal. Journal of Business Ethics 62:129–139

    Article  Google Scholar 

  • Warther V. (1995) Aggregate Mutual Fund Flows and Security Returns. Journal of Financial Economics 39:209–235

    Article  Google Scholar 

Download references

Acknowledgements

We would like to thank participants at the 2005 University of Notre Dame Ethical Dimensions in Business Conference, a referee, and Ann Tenbrunsel (editor) for helpful suggestions.

Author information

Authors and Affiliations

  1. Mendoza College of Business, University of Notre Dame, Notre Dame, IN, 46556-5646, U.S.A.

    Carl Ackermann & Tim Loughran

Authors
  1. Carl Ackermann
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Tim Loughran
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Carl Ackermann.

Additional information

University of Notre Dame Finance Professor Carl Ackermann received a Bachelor of Arts from Amherst College and a Ph.D. from the University of North Carolina (Chapel Hill). University of Notre Dame Finance Professor Tim Loughran received a Bachelor of Arts and a Bachelor of Science from the University of Illinois (Urbana), an MBA from Indiana University, and a Ph.D. from the University of Illinois (Urbana).

Rights and permissions

Reprints and permissions

About this article

Cite this article

Ackermann, C., Loughran, T. Mutual Fund Incubation and the Role of the Securities and Exchange Commission. J Bus Ethics 70, 33–37 (2007). https://doi.org/10.1007/s10551-006-9081-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-006-9081-x

Key words

Search

Navigation