Working Paper Series no. 107: The Bank Bias: Segmentation of French Fund Families

Abstract

In this paper, we investigate the performance-growth relation of French mutual funds. Using panel techniques, we find that capital inflows to French past top performing funds are not as strong as expected. This result suggests that there exist barriers to investment, that may come from the fact that funds are mostly managed by banks and insurance companies and that there are high switching costs for an investor to transfer cash from one financial institution to another. We call this phenomenon ''bank bias'', because investors do not diversify enough across banks' funds. Furthermore, we provide a test of our conjecture and cannot reject it.

Eric Jondeau and Michael Rockinger
February 2004