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Open Access Publications from the University of California

The Value of Being First: Evidence from Mutual Fund Flows

  • Author(s): Zhou, Youqing
  • Advisor(s): Schwarz, Christopher
  • et al.

Much of consumer choice is now driven by online shopping and search results. An open question is how much the value of being the “first” result is. In this paper, I use mutual funds to investigate the value. I find that fund with names that start with letters in the first half of the alphabetic ranking attract 0.85% more net flow every quarter comparing with funds in the second half. I find that this effect is driving by excess inflows rather than outflows, consistent with search results driving the findings. This bias toward early alphabetic funds is driven by retail investors, not institutional investors. Although funds with alphabetical advantage gain more investment flows, they do not necessarily perform worse than those with less flows. However, I also find no evidence that fund companies are taking advantage of this bias. Overall, I find significant economic value from being early in search results.

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