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Diversification versus Concentration Motives
in Mutual Fund Mergers

Aymen Karoui and Maher Kooli
The Journal of Wealth Management Fall 2014, 17 (2) 9-18; DOI: https://doi.org/10.3905/jwm.2014.17.2.009
Aymen Karoui
is a professor of finance at the University of Quebec’s School of Management in Montreal, QB, Canada.
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  • For correspondence: karoui.aymen@uqam.ca
Maher Kooli
is a professor of finance at the University of Quebec’s School of Management in Montreal, QB, Canada.
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  • For correspondence: kooli.maher@uqam.ca
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Abstract

This study examines the commonality between characteristics of acquirers and those of targets in mutual fund mergers. A positive and significant commonality would align with acquirers targeting similar funds and thus expecting further concentration in their segment. An opposite result would lend credence to the hypothesis that acquirers aim to diversify away from their original characteristics. Our empirical results show that acquirers and targets share positively correlated total net assets, expenses, turnover, and age, whereas they exhibit nonsignificant correlations in performance and flows. Thus, the potential for diversification could stem from the latter two characteristics. We then test whether the differences between the characteristics of acquirers and targets predict the post-merger performance of the acquirers. We find that acquirers that target funds with poorer performance, higher turnover, and higher expense ratios exhibit a decrease in their post-merger performance.

TOPICS: Mutual funds/passive investing/indexing, performance measurement

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The Journal of Wealth Management: 17 (2)
The Journal of Wealth Management
Vol. 17, Issue 2
Fall 2014
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Diversification versus Concentration Motives
in Mutual Fund Mergers
Aymen Karoui, Maher Kooli
The Journal of Wealth Management Jul 2014, 17 (2) 9-18; DOI: 10.3905/jwm.2014.17.2.009

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Diversification versus Concentration Motives
in Mutual Fund Mergers
Aymen Karoui, Maher Kooli
The Journal of Wealth Management Jul 2014, 17 (2) 9-18; DOI: 10.3905/jwm.2014.17.2.009
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  • Article
    • Abstract
    • DATA
    • DIVERSIFICATION VERSUS CONCENTRATION MOTIVES IN FUND MERGERS
    • THE DIFFERENCES BETWEEN ACQUIRER AND TARGET CHARACTERISTICS, AND POSTMERGER PERFORMANCE
    • CONCLUSIONS
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