Optimal Fund Menus

Jaksa Cvitanic () and Julien Hugonnier

No 18-47, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We study the optimal design of a menu of funds by a manager who is required to use linear pricing and does not observe the preferences of investors regarding one of the risky assets. The optimal menu involves bundling of assets and can be explicitly constructed from the solution to a calculus of variations problem that optimizes over the indirect utility that each type of investor receives. We provide a complete characterization of the optimal fund menu and show that the need to maintain incentive compatibility leads the manager to behave as a closet indexer by offering funds that are inefficiently tilted towards the asset which is not subject to the information friction.

Keywords: Mutual fund menus; screening; linear pricing; closet indexing (search for similar items in EconPapers)
JEL-codes: C62 C71 D42 D82 G11 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2018-07, Revised 2018-08
New Economics Papers: this item is included in nep-mic
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Related works:
Journal Article: Optimal fund menus (2022)
Working Paper: Optimal fund menus (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1847

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