Competition among mutual funds

Sunil Wahal, Albert (Yan) Wang

Research output: Contribution to journalArticle

41 Scopus citations

Abstract

We examine the impact of the entry of new mutual funds on incumbents using the overlap in their portfolio holdings as a measure of competitive intensity. This simple metric delivers powerful economic results. Incumbents that have a high overlap with entrants subsequently engage in price competition by reducing management fees. Distribution fees, however, rise so that investors do not benefit as much from price competition. Funds with high overlap also experience quantity competition through lower investor flows, have lower alphas, and higher attrition rates. These effects only appear after the late 1990s, at which point there appears to be an endogenous structural shift in the competitive environment. We conclude that the mutual fund market has evolved into one that displays the hallmark features of a competitive market.

Original languageEnglish (US)
Pages (from-to)40-59
Number of pages20
JournalJournal of Financial Economics
Volume99
Issue number1
DOIs
StatePublished - Jan 1 2011

Keywords

  • Competitive market
  • Incumbents
  • Mutual Funds

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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