Economics at your fingertips  

Is the active fund management industry concentrated enough?

David Feldman, Konark Saxena and Jingrui Xu

Journal of Financial Economics, 2020, vol. 136, issue 1, 23-43

Abstract: We introduce a theoretical model of the active fund management industry (AFMI) in which performance and size depend on the AFMI's competitiveness (concentration). Under plausible assumptions, as AFMI's concentration decreases, so do fund managers’ incentives for exerting effort in search of alpha. Consequently, managers produce lower gross alpha, and rational investors, inferring lower expected AFMI performance, allocate a smaller portion of their wealth to active funds. Empirically, we find that a decrease in the US mutual fund industry concentration over our sample period is associated with a decrease in its net alpha and size (relative to stock market capitalization).

Keywords: Active fund management; Market concentration; Effort; Industry size; Alpha (search for similar items in EconPapers)
JEL-codes: G11 G23 J24 L11 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jfineco.2019.08.009

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-06-20
Handle: RePEc:eee:jfinec:v:136:y:2020:i:1:p:23-43