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Demand Curves and the Pricing of Money Management

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  • Susan Christoffersen
  • David K. Musto

Abstract

Recent studies (e.g. Gruber (1996)) conclude that a subset of investors allocates away from funds with relatively worse prospects, and toward funds with better prospects. The implication for a given fund is that good prospects increase the density of performance-sensitive investors, and bad prospects increase the density of performance-insensitive investors. Since fees come out of performance, this has a straightforward pricing implication: investors remaining in the funds with bad prospects should be charged more, whether by the same fund or by a different fund that absorbs the investors. This dynamic is apparent from several angles in a sample of retail money-funds.

Suggested Citation

  • Susan Christoffersen & David K. Musto, 1999. "Demand Curves and the Pricing of Money Management," Center for Financial Institutions Working Papers 99-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:99-31
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