Competition among mutual funds

Sunil Wahal, Albert (Yan) Wang

Research output: Contribution to journalArticle

37 Citations (Scopus)

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 2011

Fingerprint

Investors
Mutual funds
Incumbents
Price competition
Management fees
Quantity competition
Attrition
Competitive market
Economics
Competitive environment
Structural shift
Fees
Competitive intensity

Keywords

  • Competitive market
  • Incumbents
  • Mutual Funds

ASJC Scopus subject areas

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

Cite this

Competition among mutual funds. / Wahal, Sunil; Wang, Albert (Yan).

In: Journal of Financial Economics, Vol. 99, No. 1, 01.2011, p. 40-59.

Research output: Contribution to journalArticle

Wahal, Sunil ; Wang, Albert (Yan). / Competition among mutual funds. In: Journal of Financial Economics. 2011 ; Vol. 99, No. 1. pp. 40-59.
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