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Optimal fund menus

Jaksa Cvitanic () and Julien Hugonnier

No 13127, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the optimal design of a menu of funds by a manager who is required to use linear pricing and does not observe the beliefs of investors regarding one of the risky assets. The optimal menu involves bundling of assets and can be explicitly constructed from the solution to a calculus of variations problem that optimizes over the indirect utility that each type of investor receives. We provide a complete characterization of the optimal menu and show that the need to maintain incentive compatibility leads the manager to offer funds that are inefficiently tilted towards the asset that is not subject to the information friction.

Keywords: asset bundling; linear pricing; Mutual fund menus; screening (search for similar items in EconPapers)
JEL-codes: C62 C71 D42 D82 G11 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-fmk and nep-mic
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