Information acquisition and mutual funds

Diego García, Joel Matthew Vanden

Research output: Contribution to journalArticle

22 Citations (Scopus)

Abstract

We study the formation of mutual funds by generalizing the standard competitive noisy rational expectations framework. In our model, informed agents set up mutual funds as a means of selling their private information to uninformed agents. We study the case of imperfect competition among fund managers, where uninformed agents invest simultaneously in multiple mutual funds. The size of the assets under management in the mutual fund industry is determined by endogenizing the agents' information acquisition decisions. Our model yields novel predictions on the informativeness of price, the optimal fees of mutual funds, and the equilibrium risk premium. In particular, we show that a sufficiently competitive mutual fund sector yields more informative prices and a lower equity risk premium.

Original languageEnglish (US)
Pages (from-to)1965-1995
Number of pages31
JournalJournal of Economic Theory
Volume144
Issue number5
DOIs
StatePublished - Sep 1 2009

Fingerprint

Mutual funds
Information acquisition
Rational expectations
Prediction
Fund managers
Assets
Imperfect competition
Private information
Informativeness
Industry
Equity risk premium
Fees
Risk premium

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

García, Diego ; Vanden, Joel Matthew. / Information acquisition and mutual funds. In: Journal of Economic Theory. 2009 ; Vol. 144, No. 5. pp. 1965-1995.
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Information acquisition and mutual funds. / García, Diego; Vanden, Joel Matthew.

In: Journal of Economic Theory, Vol. 144, No. 5, 01.09.2009, p. 1965-1995.

Research output: Contribution to journalArticle

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