 Brothers from different mothers how distribution fees change investment behaviorMarco Navone and Marco Pagani Journal of Banking & Finance, 2015, vol. 51, issue C, 12-25 Abstract: We ask whether loads affect investment flows in the US mutual fund industry. We argue that sales fees make the investment decision partially irreversible. Under these circumstances investors await for a stronger signal of managerial ability before committing to a new fund. This stronger signal can take the form of a particularly strong performance or a particularly long series of positive performance realizations. Looking at pairs of fund shares with the same portfolio but different sales fee arrangements we show that investment flows in share classes with front loads react disproportionally to good performances (higher convexity in the flow-performance relationship) and react to performance realizations further back in time (longer memory). A counterfactual example of fund shares with back-end loads allows us to rule out the hypothesis that this behavior is due to the incentive structure of brokers. Finally we show that these behavioral modifications induced by front loads have a negative and significant effect on investors’ timing ability. Keywords: Mutual fund flows; Brokerage services; Loads; Irreversible investments (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:51:y:2015:i:c:p:12-25 DOI: 10.1016/j.jbankfin.2014.10.013 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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