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Estimating the Intensity of Choice in a Dynamic Mutual Fund Allocation Decision

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Listed author(s):
  • David Goldbaum

    ()

    (Rutgers University - Newark)

  • Bruce Mizrach

    ()

    (Rutgers University)

Abstract

We estimate the intensity of choice parameter in heterogenous agent models in both a static and dynamic setting. Mean-variance optimizing agents choose among mutual funds of similar styles but varying performance. Actively managed funds have a lower Sharpe ratio than passive index funds, yet they attract a majority share of asset allocation. By estimating the relative growth of passive funds, we obtain a dynamic estimate of the intensity of choice calibrated to 10 years of mutual fund flows.

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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200414.

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Length: 20 pages
Date of creation: 06 Jun 2004
Handle: RePEc:rut:rutres:200414
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Keywords: heterogenous agents; intensity of choice; mutual funds;

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Find related papers by JEL classification:
  • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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  1. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
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  12. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
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