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Convenience in the mutual fund industry

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  • Cashman, George D.
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    Abstract

    I examine the role of convenience in the mutual fund industry. I find that investors pay more for relatively convenient funds, and that the flows to convenient funds are less responsive to performance. These findings suggest that investors do not evaluate mutual funds independently, but rather that investors select a primary fund, likely based on beliefs about managerial ability, and then select funds which are relatively convenient to this primary fund.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 18 (2012)
    Issue (Month): 5 ()
    Pages: 1326-1336

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    Handle: RePEc:eee:corfin:v:18:y:2012:i:5:p:1326-1336

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Mutual funds; Sub-advising; Performance-flow relation;

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    References

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    1. Jerold B. Warner & Joanna Shuang Wu, 2011. "Why Do Mutual Fund Advisory Contracts Change? Performance, Growth, and Spillover Effects," Journal of Finance, American Finance Association, vol. 66(1), pages 271-306, 02.
    2. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    3. Jeffrey L. Coles & Jose Suay & Denise Woodbury, 2000. "Fund Advisor Compensation in Closed-End Funds," Journal of Finance, American Finance Association, vol. 55(3), pages 1385-1414, 06.
    4. Elton, Edwin J. & Gruber, Martin J. & Green, T. Clifton, 2007. "The Impact of Mutual Fund Family Membership on Investor Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(02), pages 257-277, June.
    5. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    6. Daniel N. Deli, 2002. "Mutual Fund Advisory Contracts: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 57(1), pages 109-133, 02.
    7. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
    8. Cashman, George D. & Deli, Daniel N., 2009. "Locating decision rights: Evidence from the mutual fund industry," Journal of Financial Markets, Elsevier, vol. 12(4), pages 645-671, November.
    9. Vikram Nanda, 2004. "Family Values and the Star Phenomenon: Strategies of Mutual Fund Families," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 667-698.
    10. Cashman, George D., 2010. "Pay-performance sensitivity and firm size: Insights from the mutual fund industry," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 400-412, September.
    11. Nicolaj Siggelkow, 2003. "Why Focus? A Study Of Intra-Industry Focus Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 121-150, 06.
    12. Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R., 2006. "The adequacy of investment choices offered by 401(k) plans," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1299-1314, August.
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