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Manager-Investor Conflicts in Mutual Funds

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  • Paul G. Mahoney

Abstract

Half of all of U.S. households own shares in one or more mutual funds, either directly or through personal or employer-sponsored retirement accounts. This article describes the structure and regulation of mutual funds and the resulting incentives facing those who make decisions for the funds. After providing some basic institutional details, it focuses on the cash flows from mutual fund investors to fund managers, brokers, and other third parties and the associated conflicts of interest. The article concludes with a summary of recent legal proceedings against mutual fund managers and brokers based on improper trading practices and regulatory proposals to curb those practices.

Suggested Citation

  • Paul G. Mahoney, 2004. "Manager-Investor Conflicts in Mutual Funds," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 161-182, Spring.
  • Handle: RePEc:aea:jecper:v:18:y:2004:i:2:p:161-182
    Note: DOI: 10.1257/0895330041371231
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0895330041371231
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    References listed on IDEAS

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    1. Joseph Golec, 2003. "Regulation And The Rise In Asset-Based Mutual Fund Management Fees," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(1), pages 19-30.
    2. Eric Zitzewitz, 2003. "Who Cares About Shareholders? Arbitrage-Proofing Mutual Funds," Journal of Law, Economics, and Organization, Oxford University Press, vol. 19(2), pages 245-280, October.
    3. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    4. Daniel, Kent, et al, 1997. " Measuring Mutual Fund Performance with Characteristic-Based Benchmarks," Journal of Finance, American Finance Association, vol. 52(3), pages 1035-1058, July.
    5. Sanjiv Ranjan Das & Rangarajan K. Sundaram, 1998. "On the Regulation of Fee Structures in Mutual Funds," NBER Working Papers 6639, National Bureau of Economic Research, Inc.
    6. Sanjiv Ranjan Das & Rangarajan K. Sundaram, 1998. "The Regulation of Fee Structures in Mutual Funds: A Theoretical Analysis," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-085, New York University, Leonard N. Stern School of Business-.
    7. Ajay Khorana & Henri Servaes, 2011. "What Drives Market Share in the Mutual Fund Industry?," Review of Finance, European Finance Association, vol. 16(1), pages 81-113.
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