Demand Curves and the Pricing of Money Management

Christoffersen, Susan E. K.; Musto, David K.

doi:10.1093/rfs/15.5.1499

Cited by 216 publications

(153 citation statements)

References 18 publications

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“…Our results also shed light on the way in which mutual fund fees are determined, particulary on the question of whether fees simply reflect funds' operating costs or, as argued by Christoffersen and Musto (2002) and Gil-Bazo and Ruiz-Verdú (2007), they are set taking into account the performance sensitivity of funds' clienteles. This is especially relevant in the context of the recent debate in the literature regarding the sensitivity of SRI fund investors to performance (Bollen, 2007;Renneboog et al, 2008a;and Benson and Humphrey, 2008).…”

mentioning

confidence: 62%

“…It is well known that investor sensitivity to performance differs across funds (Sirri and Tufano, 1998). Further, Christoffersen and Musto (2002) and Gil-Bazo and Ruiz-Verdú (2007) show that fund fees are higher in funds facing less performance-sensitive investors. Therefore, if SRI fund investors were less sensitive to after-fee performance, one would expect SRI funds to charge higher fees.…”

Section: Differences In Feesmentioning

confidence: 98%

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The Performance of Socially Responsible Mutual Funds: The Role of Fees And Management Companies

2008

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In this paper, we shed light on the debate about the financial performance of socially responsible investment (SRI) mutual funds by separately analyzing the contributions of before-fee performance and fees to SRI funds' performance and by investigating the role played by fund management companies in the determination of those variables. We apply the matching estimator methodology to obtain our results and find that in the period 1997-2005, US SRI funds had significantly higher fees and better before-and after-fee performance than conventional funds with similar characteristics. Differences, however, were driven exclusively by SRI funds run by management companies specialized in socially responsible investment.

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mentioning

confidence: 62%

Section: Differences In Feesmentioning

confidence: 98%

The Performance of Socially Responsible Mutual Funds: The Role of Fees And Management Companies

2008

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“…Analyzing the puzzling evidence of price dispersion in the context of money market funds, Christoffersen and Musto (2002) conclude that investors who do not steer clear of a poorly performing fund are clearly insensitive to mutual fund performance and thus are charged a higher expense ratio because "from its investors' point of view, a fund's fee is simply a direct reduction of performance, so performance insensitivity implies price insensitivity, which, holding all else constant, implies a higher optimal price." Gil-Bazo and Ruiz-Verdú (2009) employ the same consideration in trying to justify the negative correlation between gross performance and expense ratios in a large sample of equity US mutual funds when they say that "funds with lower expected performance optimally set higher fees and target performance-insensitive investors.…”

Section: The Determinants Of Investment Decisionsmentioning

confidence: 99%

“…According to Christoffersen and Musto (2002), this evidence can easily be rationalized if one assumes that performance-sensitive investors tend to avoid poorly managed funds and invest in top performers. This generates a situation in which high-quality funds are populated by performance-sensitive investors while shares of low-quality funds are mainly held by subjects with low sensitivity to fund performance.…”

Section: Introductionmentioning

confidence: 99%

Investors’ distraction and strategic repricing decisions

Navone¹

2012

Journal of Banking & Finance

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In this paper I analyze investors' reactions to changes in the expense ratios of equity mutual funds. I show that investment flows' response to fees cannot be fully explained by looking at investors' performance sensitivity. While performance sensitivity monotonically increases with past performance, price sensitivity does not: investors who buy top past performers seem to be "distracted" by the fund's previous return and pay relatively little attention to the expense ratios. Moreover price sensitivity increases with fund visibility while performance sensitivity decreases, and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity, price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds' information for retail investors. Finally I show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities, and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior.JEL classification: G11; G23

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“…Surprisingly, empirical studies do not find that higher performing funds charge higher fees (e.g., Ruiz-Verdú, 2008, 2009). On the contrary, better managed funds charged equal or lower fees than worse performing funds (Christoffersen and Musto, 2002;Gil-Bazo and Ruiz-Verdú, 2009;GilBazo et al, 2010). One explanation behind these findings might be that performancesensitive investors through competition among high performance funds drive fees down (Christoffersen and Musto, 2002;Gil-Bazo and Ruiz-Verdú, 2008).…”

Section: Supplier's Management Feementioning

confidence: 99%

Buying CSR with employees’ pensions? The effect of social responsible investments on Norwegian SMEs’ choice of pension fund management

Biong

Silkoset

2017

IJBM

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PurposeEmployees often expect an emphasis on financial aspects to be predominant when their employers choose a fund management company for the investment of employees' pension fund deposits. By contrast, in an attempt to appear as socially responsible company managers may emphasize social responsibility in pension fund choices. This study examines to what extent managers for small and medium sized companies emphasize social responsibility (SR) vs. expected returns when choosing investment managers for their employees' pension funds. Design/methodology/approachA conjoint experiment among 276 Norwegian SMEs' decision makers examines their tradeoffs between social and financial goals in their choice of employees' pension management.Furthermore, the study examines how the companies' decision makers' characteristics influence their pension fund management choices. FindingsThe findings show that the employers placed the greatest weight to suppliers providing funds adhering to socially responsible investment (SRI) practices, followed by the suppliers' corporate brand credibility, the funds' expected return, and the suppliers' management fees.Second, employers with investment expertise emphasized expected returns and downplayed social responsibility in their choice, whereas employers with stated CSR-strategies downplayed expected return and emphasized SR. Originality/valueChoice of supplier to manage employees' pension funds relates to a general discussion on whether companies should do well -maximizing value, or do good, -maximizing corporate social responsibility. In this study, doing well means maximizing expected returns and minimizing costs of the pension investments, whereas doing good means emphasizing SRI in this choice. Unfortunately, the employees might pay a price for their companies' ethicality as moral considerations may conflict with maximizing the employees' pension fund value.

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Demand Curves and the Pricing of Money Management

Cited by 216 publications

References 18 publications

The Performance of Socially Responsible Mutual Funds: The Role of Fees And Management Companies

The Performance of Socially Responsible Mutual Funds: The Role of Fees And Management Companies

Investors’ distraction and strategic repricing decisions

Buying CSR with employees’ pensions? The effect of social responsible investments on Norwegian SMEs’ choice of pension fund management

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