Demand Curves and the Pricing of Money Management

Susan Christoffersen () and David K. Musto

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: Recent studies (e.g. Gruber (1996)) conclude that a subset of investors allocates away from funds with relatively worse prospects, and toward funds with better prospects. The implication for a given fund is that good prospects increase the density of performance-sensitive investors, and bad prospects increase the density of performance-insensitive investors. Since fees come out of performance, this has a straightforward pricing implication: investors remaining in the funds with bad prospects should be charged more, whether by the same fund or by a different fund that absorbs the investors. This dynamic is apparent from several angles in a sample of retail money-funds.

Date: 1999-08
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Journal Article: Demand Curves and the Pricing of Money Management (2002)
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