Market frictions, investor heterogeneity and persistence in mutual fund performance

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• dc.contributor.author Dumitrescu, Ariadnaca
• dc.contributor.author Gil-Bazo, Javierca
• dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
• dc.date.accessioned 2017-07-26T12:07:49Z
• dc.date.available 2017-07-26T12:07:49Z
• dc.date.issued 2012-04-01
• dc.date.modified 2017-07-23T02:16:52Z
• dc.description.abstract If there are diseconomies of scale in asset management, any predictability in mutual fund performance will be arbitraged away by rational investors seeking funds with the highest expected performance (Berk and Green, 2004). In contrast, the performance of equity mutual funds persists through time. In this paper, we show how market frictions can reconcile the assumptions of investor rationality and diseconomies of scale with the empirical evidence. More specifically, we extend the model of Berk and Green (2004) to account for financial constraints and heterogeneity in investors reservation returns reflecting the idea that less financially sophisticated investors face higher search costs. In our model, both negative and positive expected fund performance are possible in equilibrium. The model also predicts that expected fund performance increases with managerial ability and explains why predictable differences in performance across funds are more prevalent in markets populated by less sophisticated investors.
• dc.format.mimetype application/pdfca
• dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1473
• dc.identifier.uri http://hdl.handle.net/10230/23364
• dc.language.iso eng
• dc.relation.ispartofseries Economics and Business Working Papers Series; 1473
• dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
• dc.subject.keyword mutual fund performance persistence; market frictions; investor sophistication.
• dc.subject.keyword Finance and Accounting
• dc.title Market frictions, investor heterogeneity and persistence in mutual fund performanceca
• dc.type info:eu-repo/semantics/workingPaper