IDEAS home Printed from
   My bibliography  Save this paper

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


  • Matthew I. Spiegel

    () (School of Management)

  • Harry Mamaysky

    () (School of Management)


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.

Suggested Citation

  • Matthew I. Spiegel & Harry Mamaysky, 2001. "A Theory of Mutual Funds: Optimal Fund Objectives and Industry Organization," Yale School of Management Working Papers ysm219, Yale School of Management.
  • Handle: RePEc:ysm:somwrk:ysm219

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Sandeep Kapur & Allan Timmermann, 2005. "Relative Performance Evaluation Contracts and Asset Market Equilibrium," Economic Journal, Royal Economic Society, vol. 115(506), pages 1077-1102, October.
    2. Ali Hortacsu & Chad Syverson, 2003. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of the S&P 500 Index Funds," NBER Working Papers 9728, National Bureau of Economic Research, Inc.
    3. Cheng, Si & Massa, Massimo & Zhang, Hong, 2017. "The Unexpected Activeness of Passive Investors: A World-Wide Analysis of ETFs," CEPR Discussion Papers 11988, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:ysm219. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.