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When cheaper is better : fee determination in the market for equity mutual funds

[journal article]

Gil-Bazo, Javier; Ruiz-Verdú, Pablo

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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-263182

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Abstract In this paper, we develop a model of the market for equity mutual funds that captures three key characteristics of this market. First, there is competition among funds. Second, fund managers’ ability is not observed by investors before making their investment decisions. Third, some investors do not make optimal use of all available information. The main results of the paper are that (1) price competition is compatible with positive mark-ups in equilibrium, and (2) worse-performing funds set fees that are greater or equal to those set by better-performing funds. These predictions are supported by available empirical evidence.
Classification Methods and Techniques of Data Collection and Data Analysis, Statistical Methods, Computer Methods; National Economy
Method empirical
Free Keywords Mutual fund fees; Mutual fund performance; Product quality; Asymmetric information; Bounded rationality
Document language English
Publication Year 2008
Page/Pages p. 871-885
Journal Journal of Economic Behavior & Organization, 67 (2008) 3-4
DOI http://dx.doi.org/10.1016/j.jebo.2007.04.003
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)