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Do search costs explain persistent investment in active mutual funds?

Author

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  • Janssen, Aljoscha
  • Thiel, Jurre

Abstract

Active funds, though losing market share since the 1990s, make up nearly half of all mutual funds but charge more without better performance. We analyze fund data and a search model, highlighting the impact of search costs and active fund preferences. From 1993 to 2018, reduced search costs expanded the market and heightened competition, while a preference shift from active to passive funds increased the latter's market share. However, investors who choose active funds, facing higher search costs, and continue to show a strong preference for them, allow these funds to keep charging higher fees.

Suggested Citation

  • Janssen, Aljoscha & Thiel, Jurre, 2025. "Do search costs explain persistent investment in active mutual funds?," Journal of Economic Dynamics and Control, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:dyncon:v:176:y:2025:i:c:s016518892500065x
    DOI: 10.1016/j.jedc.2025.105099
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    More about this item

    Keywords

    Mutual funds; Search costs; BLP;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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