The Relation between Price and Performance in the Mutual Fund Industry

Gil-Bazo, Javier; Ruiz‐Verdú, Pablo

doi:10.1111/j.1540-6261.2009.01497.x

Cited by 420 publications

(185 citation statements)

References 80 publications

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“…More recently the issue has been addressed by Fant and O'Neal (2000) and Cashman et al (2007). Lagged flows explanatory variables are also used by Gil-Bazo and Ruiz-Verdú (2009 …”

mentioning

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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“…More recently the issue has been addressed by Fant and O'Neal (2000) and Cashman et al (2007). Lagged flows explanatory variables are also used by Gil-Bazo and Ruiz-Verdú (2009 …”

mentioning

confidence: 99%

Investors’ distraction and strategic repricing decisions

Navone¹

2012

Journal of Banking & Finance

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“…For example, when quality is uncertain, qualitysensitive buyers may pay a higher than normal price in order to receive high quality (e.g., Klein and Leffler, 1981;Rao and Bergen, 1992). Similarly, higher fees might reflect higher quality fund management, better abilities to find better performing stocks, and to deliver superior value to investors (Gil-Bazo and Ruiz-Verdú, 2009). Surprisingly, empirical studies do not find that higher performing funds charge higher fees (e.g., Ruiz-Verdú, 2008, 2009).…”

Section: Supplier's Management Feementioning

confidence: 88%

“…Similarly, the Norwegian taxpayers were estimated to lose nearly NOK 10 billion when the Norwegian Petroleum Fund withdrew from the tobacco industry (Ditlev-Simonsen and Wenstøp, 2014;Østerbø and Aare, 2014). On the other hand, studies show that SRI funds may do as well as conventional funds or even better (Berk and Green, 2004;Gil-Bazo and Ruiz-Verdú, 2009). …”

Section: Buying Csr With Employees' Pensions? the Effect Of Social Rementioning

confidence: 99%

“…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%

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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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“…Another emerging line of studies tries to address this concern with the recent development of behavioural fi nance (Christoffersen and Musto, 2002;Gil-Bazo and Ruiz-Verdu, 2009;Choi et al, 2010;Boldin and Cici, 2011). Unsophisticated investors can be so easier affected by marketing material and consultant advices that they make their suboptimal investment decisions following such incomplete information.…”

Section: Literature Reviewmentioning

confidence: 99%

Active Management and Price Efficiency of Exchange-traded Funds

Chen

Wong²,

Susai³

2016

Prague Economic Papers

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This paper extends the debate over the benefi ts of active management by investigating its impact on price effi ciency using data from available ETFs traded on the US market. After accounting for various tests in terms of price effi ciency, we fi nd that active management matters to the effi ciency improvement. One practical implication of this study is that more active management element might be considered by fund managers in designing and managing their ETFs so as to refl ect all available information into fund prices.

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The Relation between Price and Performance in the Mutual Fund Industry

Cited by 420 publications

References 80 publications

Investors’ distraction and strategic repricing decisions

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

Active Management and Price Efficiency of Exchange-traded Funds

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