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Information acquisition and mutual funds

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Listed:
  • García, Diego
  • Vanden, Joel M.

Abstract

We study the formation of mutual funds by generalizing the standard competitive noisy rational expectations framework. In our model, informed agents set up mutual funds as a means of selling their private information to uninformed agents. We study the case of imperfect competition among fund managers, where uninformed agents invest simultaneously in multiple mutual funds. The size of the assets under management in the mutual fund industry is determined by endogenizing the agents' information acquisition decisions. Our model yields novel predictions on the informativeness of price, the optimal fees of mutual funds, and the equilibrium risk premium. In particular, we show that a sufficiently competitive mutual fund sector yields more informative prices and a lower equity risk premium.

Suggested Citation

  • García, Diego & Vanden, Joel M., 2009. "Information acquisition and mutual funds," Journal of Economic Theory, Elsevier, vol. 144(5), pages 1965-1995, September.
  • Handle: RePEc:eee:jetheo:v:144:y:2009:i:5:p:1965-1995
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    Cited by:

    1. Nicolae B. Gârleanu & Lasse H. Pedersen, 2015. "Efficiently Inefficient Markets for Assets and Asset Management," NBER Working Papers 21563, National Bureau of Economic Research, Inc.
    2. Ľuboš Pástor & Robert F. Stambaugh, 2012. "On the Size of the Active Management Industry," Journal of Political Economy, University of Chicago Press, vol. 120(4), pages 740-781.
    3. Sylvain Béal & Eric Rémila & Philippe Solal, 2015. "A Class of Solidarity Allocation Rules for TU-games," Working Papers 2015-03, CRESE.
    4. Yuri Pettinicchi, 2012. "Financial Literacy, Information Acquisition and Asset Pricing Implications," Working Papers 2012_03, Department of Economics, University of Venice "Ca' Foscari".
    5. García, Diego & Urošević, Branko, 2013. "Noise and aggregation of information in large markets," Journal of Financial Markets, Elsevier, vol. 16(3), pages 526-549.
    6. Massa, Massimo & Wang, Chengwei & Zhang, Hong & Zhang, Jian, 2015. "Investing in Low-Trust Countries: Trust in the Global Mutual Fund Industry," CEPR Discussion Papers 10472, C.E.P.R. Discussion Papers.
    7. repec:kap:theord:v:83:y:2017:i:1:d:10.1007_s11238-017-9586-z is not listed on IDEAS
    8. Sylvain Béal & Eric Rémila & Philippe Solal, 2017. "Axiomatization and implementation of a class of solidarity values for TU-games," Theory and Decision, Springer, vol. 83(1), pages 61-94, June.
    9. Cheng, Si & Massa, Massimo & Zhang, Hong, 2015. "Short-Sale Constraints and the Pricing of Managerial Skills," CEPR Discussion Papers 10447, C.E.P.R. Discussion Papers.
    10. Glode, Vincent, 2011. "Why mutual funds "underperform"," Journal of Financial Economics, Elsevier, vol. 99(3), pages 546-559, March.
    11. repec:eee:jfinec:v:125:y:2017:i:2:p:311-325 is not listed on IDEAS
    12. Briana Chang & Harrison Hong, 2017. "Assignment of Stock Market Coverage," NBER Working Papers 23115, National Bureau of Economic Research, Inc.
    13. Robert F. Stambaugh, 2014. "Investment Noise and Trends," NBER Working Papers 20072, National Bureau of Economic Research, Inc.
    14. Manela, Asaf, 2014. "The value of diffusing information," Journal of Financial Economics, Elsevier, vol. 111(1), pages 181-199.
    15. Taylor, Daniel J. & Verrecchia, Robert E., 2015. "Delegated trade and the pricing of public and private information," Journal of Accounting and Economics, Elsevier, vol. 60(2), pages 8-32.

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