The Research Of Dynamic Impact Of Favoritism In Mutual Fund Families Under Regulation

One of the most striking features of the mutual funds industry is the prevalence of the fund family organization. On the one hand, family affiliation offers lower search costs for investors and the potential for economies of scale and scope. On the other hand, however, family affiliation distorts the incentives of find managers, inducing them to sacrifice the interest of find shareholders if the overall family stands to benefit. This family strategy of“favoritism”is one kind of new agency costs between mutual funds and investors.Earnings and unity brought by favoritism induce incentive of fund families and fund managers without regulation. However, the appearance of regulation will change the earnings and unity of fund families and fund managers which have an influence on their actions. In this thesis, I investigate dynamic impact of fund family favoritism under regulation. It’s considered that fund families and fund managers are rational economic man who makes a decision by expected utility theory.The research shows that fund families decide to pursue the family strategy of“favoritism”depend on relative earnings and contingent costs under regulation. If the fund families are heavily regulated, they are reluctant to give up pursue the family strategy of“favoritism”. And the fund managers’job efforts depend on utility brought by funds they managed. If a fund manager is not in charge of managing fund family’s favorite fund, his job effort will distort. He will work less hard than before. Based on research on optimal strategies of fund families and fund managers, my work addresses the presence of the family strategy of“favoritism”and contributes to the literature on its consequences for delegated asset management. This is the first research on family strategy of“favoritism”under regulation.