Are mutual fund investors in jail?
The absence of investor reaction to the poor performance of mutual funds is a widely reported phenomenon. This paper investigates the role of load costs as an explanation for the phenomenon and concludes that back-end load fees are an obstacle to reaction. We find that investors with a high likelihood of undergoing a liquidity crisis, preferring liquidity in decision making, act contrary to the reaction hypothesis, and investors with broader investment horizons do not react to poor performances due to the fact that they are “imprisoned” by back-end load fees.
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"Risk Taking by Mutual Funds as a Response to Incentives,"
96-3, Massachusetts Institute of Technology (MIT), Department of Economics.
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- Carlos Alves & Victor Mendes, 2001. "Corporate Governance Policy and Company Performance: The Case of Portugal," FEP Working Papers 112, Universidade do Porto, Faculdade de Economia do Porto.
- Ippolito, Richard A, 1992. "Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 45-70, April.
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Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 145-158, 06.
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