The Mutual Fund Industry Worldwide: Explicit and Closet Indexing, Fees, and Performance
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
May 24, 2014
We examine the relation between indexing and active management in the mutual fund industry worldwide. Explicit indexing is rare in countries with weaker regulation and less developed financial markets, and many actively managed funds engage in closet indexing. 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. Moreover, truly active funds generate higher risk-adjusted net returns than closet indexers. Overall, our evidence suggests that explicit indexing improves the levels of competition and efficiency of the mutual fund industry.
Number of Pages in PDF File: 76
Keywords: Mutual funds, Active management, Index funds, Exchange-traded funds, Competition, Fees, Performance
JEL Classification: G15, G18, G23working papers series
Date posted: May 3, 2011 ; Last revised: June 10, 2014
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