Indexing and active fund management: International evidence

Martijn Cremers, Miguel Ferreira (), Pedro Matos and Laura Starks

Journal of Financial Economics, 2016, vol. 120, issue 3, 539-560

Abstract: We examine the relation between indexing and active management in the mutual fund industry worldwide. Explicit indexing and closet indexing by active funds are associated with countries’ regulatory and financial market environments. We find that actively managed funds are more active and charge lower fees when they face more competitive pressure from low-cost explicitly indexed funds. A quasi-natural experiment using the exogenous variation in indexed funds generated by the passage of pension laws supports a causal interpretation of the results. Moreover, the average alpha generated by active management is higher in countries with more explicit indexing and lower in countries with more closet indexing. Overall, our evidence suggests that explicit indexing improves competition in the mutual fund industry.

Keywords: Mutual funds; Active management; Index funds; Exchange-traded funds; Competition; Fees; Performance (search for similar items in EconPapers)
JEL-codes: G15 G18 G23 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (98)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:120:y:2016:i:3:p:539-560

DOI: 10.1016/j.jfineco.2016.02.008

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