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Marketing Mutual Funds

Author

Listed:
  • Nikolai Roussanov
  • Hongxun Ruan
  • Yanhao Wei
  • Stijn Van Nieuwerburgh

Abstract

Marketing and distribution expenses are responsible for about one-third of the cost of active management in the mutual fund industry. Estimating a structural model with costly investor search and learning about fund skill, we find that marketing is nearly as important as performance and fees in determining fund size. Eliminating marketing substantially improves welfare: capital shifts toward cheaper funds and competition decreases fees; active funds shrink and capital allocation becomes more closely aligned with skill. Declining investor search costs imply a reduction in marketing expenses and management fees as well as a shift toward passive investing, as observed empirically.

Suggested Citation

  • Nikolai Roussanov & Hongxun Ruan & Yanhao Wei & Stijn Van Nieuwerburgh, 2021. "Marketing Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 34(6), pages 3045-3094.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:6:p:3045-3094.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa095
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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