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The Impact of Shrouded Fees: Evidence from a Natural Experiment in the Indian Mutual Funds Market

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  • Santosh Anagol
  • Hugh Hoikwang Kim

Abstract

We study a natural experiment in the Indian mutual funds sector that created a 22-month period in which closed-end funds were allowed to charge an arguably shrouded fee, whereas open-end funds were forced to charge entry loads. Forty-five new closed-end funds were started during this period, collecting $7.6 billion US, whereas only two closed-end funds were started in the 66 months prior to this period, collecting $42 billion US, and no closed-end funds were started in the 20 months after this period. We estimate that investors lost and fund firms gained approximately $350 million US due to this shrouding. (JEL D14, G23, G28, O16)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 1 (February)
Pages: 576-93

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:1:p:576-93

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  1. James Choi & David Laibson & Brigitte Madrian, 2008. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Yale School of Management Working Papers, Yale School of Management amz2369, Yale School of Management, revised 05 May 2008.
  2. Jeremy C. Stein, 2005. "Why are most Funds Open-end? Competition and the Limits of Arbitrage," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(1), pages 247-272, January.
  3. Gruber, Martin J, 1996. " Another Puzzle: The Growth in Activity Managed Mutual Funds," Journal of Finance, American Finance Association, American Finance Association, vol. 51(3), pages 783-810, July.
  4. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, Elsevier, vol. 91(3), pages 278-287, March.
  5. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  6. Fabian Duarte & Justine S. Hastings, 2012. "Fettered Consumers and Sophisticated Firms: Evidence from Mexico's Privatized Social Security Market," NBER Working Papers 18582, National Bureau of Economic Research, Inc.
  7. Santosh Anagol & Hugh Hoikwang Kim, 2012. "The Impact of Shrouded Fees: Evidence from a Natural Experiment in the Indian Mutual Funds Market," American Economic Review, American Economic Association, American Economic Association, vol. 102(1), pages 576-93, February.
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Cited by:
  1. Santosh Anagol & Hugh Hoikwang Kim, 2012. "The Impact of Shrouded Fees: Evidence from a Natural Experiment in the Indian Mutual Funds Market," American Economic Review, American Economic Association, American Economic Association, vol. 102(1), pages 576-93, February.
  2. Campbell, John Y & Ramadorai, Tarun & Ranish, Benjamin, 2012. "How Do Regulators Influence Mortgage Risk? Evidence from an Emerging Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9136, C.E.P.R. Discussion Papers.
  3. Monika Halan & Renuka Sane & Susan Thomas, 2013. "Estimating losses to customers on account of mis-selling life insurance policies in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-007, Indira Gandhi Institute of Development Research, Mumbai, India.

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