Brazilian mutual funds life cycle analysis

Advisor: Ruy Monteiro Ribeiro

Co-advisor: Walter Novaes

Funds close and open over time. The existing evidence is that those that close are those with lower cumulative returns in the period prior to closing. This dissertation shows that this closing dynamic also appears in the Brazilian stock funds market. In a sample of 1192 equity funds, from 2002 to 2016, 448 funds closed. Of these, 39 funds lead to the opening of another under the same management. I show that open-ended closing is typically accompanied by increased return volatility, which I interpret as an attempt to change the investment strategy previously followed. However, this change does not change the manager’s abnormal return, as estimated by Carhart’s 4-factor model. Finally, I show that the likelihood of fund closure increases with the number of funds opened by the manager in the month prior to closing. This suggests that managers open new funds before closing others to minimize the chance of losing investors.