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Costly search and mutual fund flows (1998)
| Venue: | Journal of Finance |
| Citations: | 523 - 5 self |
BibTeX
@ARTICLE{Sirri98costlysearch,
author = {Erik R. Sirri and Peter Tufano},
title = {Costly search and mutual fund flows},
journal = {Journal of Finance},
year = {1998},
pages = {1589--1622}
}
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Abstract
This paper studies the flows of funds into and out of equity mutual funds. Consumers base their fund purchase decisions on prior performance information, but do so asymmetrically, investing disproportionately more in funds that performed very well the prior period. Search costs seem to be an important determinant of fund flows. High performance appears to be most salient for funds that exert higher marketing effort, as measured by higher fees. Flows are directly related to the size of the fund’s complex as well as the current media attention received by the fund, which lower consumers ’ search costs. ALTHOUGH MUCH ACADEMIC RESEARCH on mutual funds addresses issues of performance measurement and attribution, we can learn more from this industry than whether fund managers can consistently earn risk-adjusted excess returns. Researchers studying funds have shed light on how incentives affect fund managers ’ behavior, 1 how board structure affects oversight activities, 2 and how scale and scope economies affect mutual fund costs and fees. 3 More generally, the fund industry is a laboratory in which to study the actions of individual investors who buy fund shares. In this paper, we study the flows of funds into and out of individual U.S. equity mutual funds to better understand the behavior of households that buy funds and the fund complexes and marketers that sell them.
Keyphrases
mutual fund flow fund manager fund complex mutual fund cost board structure oversight activity important determinant fund industry equity mutual fund prior performance information marketing effort high performance risk-adjusted excess return current medium attention scope economy prior period mutual fund performance measurement fund flow fund share paper study individual u.s. equity mutual fund individual investor although much academic research fund purchase decision
