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  5. Mutual Fund Flows and Marketing
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Mutual Fund Flows and Marketing

Paper Session

Monday, Jan. 4, 2021 12:15 PM - 2:15 PM (EST)

Hosted By: American Finance Association
  • Chair: Nikolai Roussanov, University of Pennsylvania

The Effect of Financial Adviser Commissions on the Mutual Fund Market: Evidence from a Natural Experiment

Stanislav Sokolinski
,
Rutgers University

Abstract

Do limitations on commissions paid to financial advisers reduce prices of financial products and stimulate investment? I examine this question by estimating the causal effects of regulating commissions for mutual fund distribution. I exploit the unique institutional setting in Israel and the 2013 policy change when the government reduced commissions differently for different fund types. The reform led to a major decline in fund expense ratios and a consequent increase in fund flows. Funds with price-sensitive investors experienced a 35% larger inflows. I interpret these results as investor response to price competition fostered by a reduction in distribution costs.

FinTech Platform and Mutual Fund Distribution

Claire Yurong Hong
,
Shanghai Jiao Tong University
Xiaomeng Lu
,
Shanghai Jiao Tong University
Jun Pan
,
Shanghai Jiao Tong University

Abstract

This paper documents the economic impact of FinTech platforms in financial intermediation. In China, platform distributions of mutual funds emerged in 2012, and grew quickly into a formidable presence. Utilizing the staggered fund entrance onto platforms, we identify the casual effect of FinTech platforms on investors, funds, and fund families. We find markedly increased flow sensitivities to performance: net flow captured by top-10% performing funds more than triples its pre-platform level. Correspondingly, fund managers increase risk-taking to enhance the probability of becoming top performers. Meanwhile, organizational cohesiveness of fund families weakens as platforms level the playing field for all funds.

What Drives the Size and Value Factors?

Jiacui Li
,
University of Utah

Abstract

Since 1965, retail investors frequently made large capital reallocations across mutual funds of dif- ferent size and value styles. These flows generated large price pressures in stocks that reversed in the subsequent two years, explaining approximately 30% of Fama-French size and value factor movements. Why can flows explains so much factor-level returns? I argue this is due to slow-moving capital. Most institutional investors, except active mutual funds and some hedge funds, do not trade against flow-induced price dislocations. Surprisingly, the largest liquidity provider are companies trading their own stocks. The liquidity provision responses are very slow, generating sluggish price reversion.

Capital Allocation and the Market for Mutual Funds: Inspecting the Mechanism

Jules van Binsbergen
,
University of Pennsylvania
Jeong Ho (John) Kim
,
Emory University
Soohun Kim
,
Georgia Institute of Techonology

Abstract

We analyze the effects of returns to scale on capital allocation decisions in the mutual fund market by exploiting individual heterogeneity in decreasing returns to scale across funds. We find strong evidence that steeper decreasing returns to scale attenuate flow sensitivity to performance and lead to smaller fund sizes. Our results are consistent with a rational model for active management. Using the model, we argue that a large fraction of capital allocation due to differences in decreasing returns to scale can be plausibly attributed to investors anticipating these effects of scale.
Discussant(s)
Wei Wu
,
Texas A&M University
Laurent Barras
,
McGill University
Yanhao Wei
,
University of Southern California
Hongxun Ruan
,
Peking University
JEL Classifications
  • G1 - Asset Markets and Pricing