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- Publisher
- Oxford University Press
- Copyright
- © Published by Oxford University Press.
- Subject
- Articles
- ISSN
- 0033-5533
- eISSN
- 1531-4650
- DOI
- 10.1162/0033553041382184
- Publisher site
- See Article on Publisher Site
Abstract
We investigate the role that nonportfolio fund differentiation and information/search frictions play in creating two salient features of the mutual fund industry: the large number of funds and the sizable dispersion in fund fees. In a case study, we find that despite the financial homogeneity of S&P 500 index funds, this sector exhibits the fund proliferation and fee dispersion observed in the broader industry. We show how extra-portfolio mechanisms explain these features. These mechanisms also suggest an explanation for the puzzling late-1990s shift in sector assets to more expensive (and often newly entered) funds: an influx of high-information-cost novice investors.
Journal
The Quarterly Journal of Economics – Oxford University Press
Published: May 1, 2004