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http://ssrn.com/abstract=1830207
 
 

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The Mutual Fund Industry Worldwide: Explicit and Closet Indexing, Fees, and Performance


Martijn Cremers


University of Notre Dame

Miguel A. Ferreira


Nova School of Business and Economics; European Corporate Governance Institute (ECGI)

Pedro P. Matos


University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Laura T. Starks


University of Texas at Austin - Department of Finance

November 13, 2014


Abstract:     
We examine the relation between indexing and active management in the mutual fund industry worldwide. Explicit indexing and closet indexing by active funds are associated with countries’ regulatory and financial market environments. We find that actively managed funds are more active and charge lower fees when they face more competitive pressure from low-cost explicitly indexed funds. A quasi-natural experiment using the exogenous variation in indexed funds generated by the passage of pension laws supports a causal interpretation of the results. Moreover, the average alpha generated by active management is higher in countries with more explicit indexing and lower in countries with more closet indexing. Overall, our evidence suggests that explicit indexing improves competition in the mutual fund industry.

Number of Pages in PDF File: 71

Keywords: Mutual funds, Active management, Index funds, Exchange-traded funds, Competition, Fees, Performance

JEL Classification: G15, G18, G23

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Date posted: May 3, 2011 ; Last revised: November 13, 2014

Suggested Citation

Cremers, Martijn and Ferreira, Miguel A. and Matos, Pedro P. and Starks, Laura T., The Mutual Fund Industry Worldwide: Explicit and Closet Indexing, Fees, and Performance (November 13, 2014). Available at SSRN: http://ssrn.com/abstract=1830207 or http://dx.doi.org/10.2139/ssrn.1830207

Contact Information

K. J. Martijn Cremers (Contact Author)
University of Notre Dame ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
Miguel Almeida Ferreira
Nova School of Business and Economics ( email )
Campus de Campolide
Lisbon, 1099-032
Portugal
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Pedro P. Matos
University of Virginia - Darden School of Business ( email )
University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Laura T. Starks
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)
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