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A Theory of Mutual Funds: Optimal Fund Objectives and Industry Organization

Listed author(s):
  • Matthew I. Spiegel


    (School of Management)

  • Harry Mamaysky


    (School of Management)

Registered author(s):

    This paper presents a model in which investors cannot remain in the market to trade at all times. As a result, they have an incentive to set up trading firms or financial market intermediaries (FMI's) to take over their portfolio while they engage in other activities. Previous research has assumed that such firms act like individuals endowed with a utility function. Here, as in reality, they are firms that simply take orders from their investors. From this setting emerges a theory of mutual funds and other FMI's (such as investment houses, banks, and insurance companies) with implications for their trading styles, as well as for their effects on asset prices. The model provides theoretical support for past empirical findings, and provides new empirical predictions which are tested in this paper.

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    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm219.

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    Date of creation: 04 Sep 2001
    Handle: RePEc:ysm:somwrk:ysm219
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