Abstract
What characteristics of mutual funds do investors care about? In addition to performance and fees, we show that investors exhibit a clear preference for managers who adhere to the strategies they describe in their prospectuses. Capital flows respond negatively when funds diverge from the average holdings of their text-based strategy peer groups, but positively when they outperform those peer averages. We identify this effect using a novel instrumental variables approach, and show that funds face a delicate trade-off between keeping their promises and outperforming their peers who make similar promises.
Original language | English |
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Article number | 103948 |
Journal | Journal of Financial Economics |
Volume | 162 |
Number of pages | 35 |
ISSN | 0304-405X |
DOIs | |
Publication status | Published - Dec 2024 |
Keywords
- Mutual fund strategies
- Prospectuses
- Industrial organization
- Fund flows
- Machine learning