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Estimating the Intensity of Choice in a Dynamic Mutual Fund Allocation Decision

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Author Info
David Goldbaum () (Economics Rutgers University)
Bruce Mizrach

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Abstract

We estimate the intensity of choice parameter in heterogenous agent models in both a static and dynamic setting. Mean-variance optimizing agents choose among mutual funds of similar styles but varying performance. Actively managed funds have a lower Sharpe ratio than passive index funds, yet they attract a majority share of asset allocation. By estimating the relative growth of passive funds, we obtain a dynamic estimate of the intensity of choice calibrated to 10 years of mutual fund flows

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 295.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:295

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Related research
Keywords: heterogenous agents; intensity of choice; mutual funds;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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References listed on IDEAS
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  1. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August. [Downloadable!] (restricted)
  2. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  3. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March. [Downloadable!] (restricted)
  4. Edwin J. Elton & Martin J. Gruber & Jeffrey A. Busse, 2004. "Are Investors Rational? Choices among Index Funds," Journal of Finance, American Finance Association, vol. 59(1), pages 261-288, 02. [Downloadable!] (restricted)
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