Performance of Mutual Funds Before and After Closing to New Investors

Abstract

This study examines the decision to close mutual funds to new investors due to the growth of the funds’ assets. The evidence indicates that funds perform better three years prior to closing to new investors than they do afterwards. Furthermore, the evi- dence indicates that the closed funds outperform the control port$olios of funds with similar investment objectives and asset size during the one- and three-year periods prior to closing. However, there is no significant difference in the pe$ormance of closed finds and their matched control porcolios during the one- and three-year peri- ods after closing. Although the primary reason given for closing the finds is the desire to maintain performance in the face of growing assets, the strategy does not appear successful in accomplishing this objective.