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Mutual Fund Competition in the Presence of Dynamic Flows

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Author Info

  • 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))

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    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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    Bibliographic Info

    Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 08-26.

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    Length: 28 pages
    Date of creation: Sep 2008
    Date of revision:
    Handle: RePEc:chf:rpseri:rp0826

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    Web page: http://www.SwissFinanceInstitute.ch
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    Related research

    Keywords: portfolio management; asset-based management fees; mutual funds; dynamic flows; stochastic differential game.;

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