Michèle Breton (CREF, GERAD, and HEC Montr´eal) Julien Hugonnier (University of Lausanne and Swiss Finance Institute) Tarek Masmoudi (Caisse de d´epˆot et placement du Qu´ebec (CDPQ))
Abstract
This paper analyzes competition between mutual funds in a multiple funds version of the model of Hugonnier and Kaniel [18]. We characterize the set of equilibria for this delegated portfolio management game and show that there exists a unique Pareto optimal equilibrium. The main result of this paper shows that the funds cannot differentiate themselves through portfolio choice in the sense that they should offer the same risk/return tradeoff in equilibrium. This result brings theoretical support to the findings of recent empirical studies on the importance of media coverage and marketing in the mutual funds industry.
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