IQ and Mutual Fund Choice

Mark Grinblatt (), Seppo Ikäheimo (), Matti Keloharju () and Samuli Knüpfer
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Mark Grinblatt: UCLA Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095
Seppo Ikäheimo: School of Business, Aalto University, 000076 Aalto, Finland
Matti Keloharju: School of Business, Aalto University, 000076 Aalto, Finland; Research Institute of Industrial Economics, SE-102 15 Stockholm, Sweden; and Centre for Economic Policy Research, London EC1V 3PZ, United Kingdom

Management Science, 2016, vol. 62, issue 4, 924-944

Abstract: We show that cognitive ability influences mutual fund choice: high-IQ investors avoid funds with high management fees. Two competing stories can explain this phenomenon. One is that high-IQ consumers benefit less from costly services, as they find it easier to make informed financial decisions without external help. The alternative story is that these investors are less likely to overpay for the services they receive because they are either better judges of value or more capable of discerning the price charged for these services. A comprehensive data set of Finnish males’ fund holdings supports both stories: consistent with the first story, high-IQ investors tend to avoid funds sold via expensive service-intensive channels and prefer a mix of equity and bond funds to expensive readily packaged balanced funds. Consistent with the alternative story, IQ and fees are inversely correlated, even after controlling for many fund services, including any operating at the fund family level. This paper was accepted by Wei Jiang, finance.

Keywords: mutual fund; IQ; education; fees; portfolio choice (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:62:y:2016:i:4:p:924-944

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