Broken promises, competition, and capital allocation in the mutual fund industry
Abis, Simona; Lines, Anton. Broken promises, competition, and capital allocation in the mutual fund industry. Journal of Financial Economics. Dec2024, Vol. 162, pN.PAG-N.PAG.
What characteristics of mutual funds do investors care about? In addition to performance and fees, we show that investors exhibit a clear preference for managers who adhere to the strategies they describe in their prospectuses. Capital flows respond negatively when funds diverge from the average holdings of their text-based strategy peer groups, but positively when they outperform those peer averages. We identify this effect using a novel instrumental variables approach, and show that funds face a delicate trade-off between keeping their promises and outperforming their peers who make similar promises."ÌýÌýÌý ÌýÌýÌýÌý
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