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Mutual Fund Competition in the Presence of Dynamic Flows

Michèle Breton, Julien Hugonnier and Tarek Masmoudi
Additional contact information
Michèle Breton: CREF, GERAD, and HEC Montr´eal
Tarek Masmoudi: Caisse de d´epˆot et placement du Qu´ebec (CDPQ)

No 08-26, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper analyzes competition between mutual funds in a multiple funds version of the model of Hugonnier and Kaniel [18]. We characterize the set of equilibria for this delegated portfolio management game and show that there exists a unique Pareto optimal equilibrium. The main result of this paper shows that the funds cannot differentiate themselves through portfolio choice in the sense that they should offer the same risk/return tradeoff in equilibrium. This result brings theoretical support to the findings of recent empirical studies on the importance of media coverage and marketing in the mutual funds industry.

Keywords: portfolio management; asset-based management fees; mutual funds; dynamic flows; stochastic differential game. (search for similar items in EconPapers)
JEL-codes: C61 G11 G12 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2008-09
New Economics Papers: this item is included in nep-com and nep-fmk
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