Mutual Fund Tournaments for Distribution

Abstract:
We study the role of distribution channels in mutual fund sales and risk-shifting. We find that a fund’s relative performance among those that share a distributor (i.e., performance rank within a distributor) is an important determinant of mutual fund flows arriving through that distributor. This distributor-level flow-performance relationship is robust to various fixed effects and controls, including distributor-by-time fixed effects and performance rank within styles. The importance of funds’ relative position within their distributors also manifests itself in mutual fund risk shifting: We show that funds’ midyear positions within their distributors are negatively associated with the funds’ risk-taking behaviors in the second half of the year.