NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Hongxun Ruan

Peking University
Guanghua School of Management
Finance Department
Beijing
China

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of Pennsylvania

NBER Working Papers and Publications

September 2018Marketing Mutual Funds
with Nikolai Roussanov, Yanhao Wei: w25056
Marketing and distribution expenses are responsible for about a third of the cost of active management in the mutual fund industry. We develop and estimate a structural model of mutual fund marketing with learning about unobserved skill and costly investor search. Our estimates suggest that marketing is nearly as important as performance and fees for determining fund size. Eliminating marketing substantially improves welfare, as capital shifts towards cheaper funds and competition decreases fees. Average alpha increases as active funds shrink, and capital allocation becomes more closely aligned with manager skill net of fees. Declining investor search costs over time imply a reduction in marketing expenses and management fees as well as a shift towards passive investing, as observed empiri...
 
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