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Information acquisition and mutual funds

Listed author(s):
  • García, Diego
  • Vanden, Joel M.
Registered author(s):

    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0022-0531(09)00047-7
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    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 144 (2009)
    Issue (Month): 5 (September)
    Pages: 1965-1995

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    Handle: RePEc:eee:jetheo:v:144:y:2009:i:5:p:1965-1995
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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