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Convenience in the mutual fund industry

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  • Cashman, George D.

Abstract

I examine the role of convenience in the mutual fund industry. I find that investors pay more for relatively convenient funds, and that the flows to convenient funds are less responsive to performance. These findings suggest that investors do not evaluate mutual funds independently, but rather that investors select a primary fund, likely based on beliefs about managerial ability, and then select funds which are relatively convenient to this primary fund.

Suggested Citation

  • Cashman, George D., 2012. "Convenience in the mutual fund industry," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1326-1336.
    • Handle: RePEc:eee:corfin:v:18:y:2012:i:5:p:1326-1336
    DOI: 10.1016/j.jcorpfin.2012.09.003
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    References listed on IDEAS

    as
    1. Cashman, George D., 2010. "Pay-performance sensitivity and firm size: Insights from the mutual fund industry," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 400-412, September.
    2. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    3. Elton, Edwin J. & Gruber, Martin J. & Green, T. Clifton, 2007. "The Impact of Mutual Fund Family Membership on Investor Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(2), pages 257-277, June.
    4. Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R., 2006. "The adequacy of investment choices offered by 401(k) plans," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1299-1314, August.
    5. Cashman, George D. & Deli, Daniel N., 2009. "Locating decision rights: Evidence from the mutual fund industry," Journal of Financial Markets, Elsevier, vol. 12(4), pages 645-671, November.
    6. Vikram Nanda, 2004. "Family Values and the Star Phenomenon: Strategies of Mutual Fund Families," The Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 667-698.
    7. repec:bla:jfinan:v:53:y:1998:i:5:p:1589-1622 is not listed on IDEAS
    8. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    9. Nicolaj Siggelkow, 2003. "Why Focus? A Study Of Intra‐Industry Focus Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 121-150, June.
    10. Daniel N. Deli, 2002. "Mutual Fund Advisory Contracts: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 57(1), pages 109-133, February.
    11. Jerold B. Warner & Joanna Shuang Wu, 2011. "Why Do Mutual Fund Advisory Contracts Change? Performance, Growth, and Spillover Effects," Journal of Finance, American Finance Association, vol. 66(1), pages 271-306, February.
    12. Jeffrey L. Coles & Jose Suay & Denise Woodbury, 2000. "Fund Advisor Compensation in Closed‐End Funds," Journal of Finance, American Finance Association, vol. 55(3), pages 1385-1414, June.
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    Cited by:

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    2. Jeremy Burke & Angela A. Hung & Jack Clift & Steven Garber & Joanne K. Yoong, 2015. "Impacts of Conflicts of Interest in the Financial Services Industry," Working Papers WR-1076, RAND Corporation.

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    More about this item

    Keywords

    Mutual funds; Sub-advising; Performance-flow relation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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