Mutual Fund Flows When Managers Have Foreign-Sounding Names

Mutual Fund Flows When Managers Have Foreign-Sounding Names

2017-04-28 郝晶组 北洋科学楼713

Review of financial studies

What’s in a Name? Mutual Fund Flows When Managers Have Foreign-Sounding Names

Kumar, A., Niessen-Ruenzi, A., & Spalt, O. G.


  • The name of a person, either consciously or sub-consciously, assign a host of attributes to that person, which are related to the “group” (i.e., country of origin, religion, race, ethnicity, culture, etc.) associated with the name. This paper starts from the common sense of everyday life, tried to explore the truth behind” the name effect”.
  • Often, name-related stereotypes get activated almost spontaneously without much conscious effort (Kunda (1999)). The authors found a theoretical foundation to support their conjecture, which means the stereotypes do live together with a certain name.
  • These stereotypes consequently may color the initial impressions of the person. This paper pointed out its mission in revealing the secret of a certain name by relating this topic to the hotspot issue ”social bias”

    Key literatures

  • Basis from the psychology:

²  Kunda, Z., 1999, Social Cognition: Making Sense of People, MIT Press, Cambridge, MA.

²  Tajfel, H., 1982, “Social Psychology of Intergroup Relations,” Annual Review of Psychology, 33, 1–39.

²  Hewstone, M., M. Rubin, and H. Willis, 2002, “Intergroup Bias,” Annual Review of Psychology, 53,575–604.

  • Introduce the discriminations/bias to the financial market

²  Wolfers, J., 2006, “Diagnosing Discrimination: Stock Returns and CEO Gender,” Journal of the European Economic Association, 4, 531–541.

²  Kumar, A., 2010, “Self-Selection and the Forecasting Abilities of Female Equity Analysts,” Journal of Accounting Research, 48, 393–435.

²  Niessen-Ruenzi, A., and S. Ruenzi, 2011, “Sex Matters: Gender and Prejudice in the Mutual Fund Industry,” Working Paper (November), Univeristy of Mannheim; Available at SSRN:


  • Steps:

1)Conjecture (funds with “foreign” managers would experience lower flows even if managers of those funds do not have inferior investment skill or follow a different investment style)

2)Regressions & Empirical Studies (Examine whether investors are less likely to invest in mutual funds that have managers with foreign-sounding names

3)Analyzation& Robustness test(Diminish the possibility of statistical discrimination)

a).this paper check especially the cases in conservative regions.

b).compare the result before and after the event “911” to measure the impact this event on the “name effect”.

c).this paper also focus on investors with their born regions to obtain the unbiased estimation.

  • Tools:


    The Fama and MacBeth (1973) method


  • This paper contributes to the growing literature in behavioral finance that examines the effects of social biases such as discrimination and stereotyping on financial markets. This is the first paper to demonstrate that social biases such as in-group bias and stereotyping can aggregate and have the potential to influence aggregate-level variables like fund flows. Several previous papers have examined the impact of psychological biases such as overconfidence and the disposition effect on aggregate-level variables such as turnover, liquidity, and returns. However, none of these studies study the impact of social biases on portfolio decisions and aggregate-level variables.

i.Name-induced flow patterns are stronger for funds headquartered in regions that are more conservative and where racial and ethnic stereotypes are more pronounced.

ii.Because fund location is mostly exogenous, these findings provide strong support for the view that discrimination is induced by social biases and is likely to be taste-based.

  • This paper also contributes to a broader literature in economics that provides evidence of in-group bias and discrimination in a variety of settings. It provides strong evidence of taste-based discrimination and demonstrate that social biases such as in-group bias and stereotyping affect capital allocations in the mutual fund industry, which is one of the most liquid and competitive capital markets in the U.S.

i.Evidence of taste-based discrimination using the exogenous event of 911 terrorist attacks.

ii.both the degree of conservatism and in-group bias affect the mutual fund choices of individual investors. biases such as discrimination, stereotyping, and in-group bias influence the behavior of mutual fund investors(conform the conjecture).


  • This paper studies whether social biases induced by a person’s name affect the investment choices of mutual fund investors. Specifically, examines whether investors are less likely to invest in mutual funds that have managers with foreign-sounding names. The key finding is that funds with “foreign” managers experience lower flows even though these managers do not differ in the risk-adjusted returns they generate from managers who have typical American names. And also documents that foreign-sounding names alter the flow-performance relation. Investors “punish” fund managers more after bad performance by withdrawing more capital and “reward” them less after good performance by additional investment if the fund-manager name sounds foreign.
  • The paper provides several tests that all support an interpretation based on taste-based discrimination against managers with foreign-sounding names.

i.First, the flow effects are stronger for funds that have more conservative investor clienteles or are located in regions where racial/ethnic stereotypes are more pronounced.

ii.Further, following the 9/11 terrorist attacks, fund managers with Middle-Eastern and South-Asian names experience a drop in fund flows relative to other managers with foreign-sounding names. Even in an experimental setting where managerial skill differences do not exist, individuals allocate 14% less money to an index fund run by a manager with foreign-sounding name.

iii.Last, using investor-level data find that investors who live in regions with high concentration of foreign-born individuals invest less in funds managed by individuals with more familiar American names.