Competition Among Mutual Funds

45 Pages Posted: 22 Mar 2008 Last revised: 25 Aug 2011

See all articles by Sunil Wahal

Sunil Wahal

Arizona State University (ASU) - Finance Department

Yan Albert Wang

Auburn University

Date Written: March 1, 2010


We examine the impact of the entry of new mutual funds on incumbents using the overlap in their portfolio holdings as a measure of competitive intensity. This simple metric delivers powerful economic results. Incumbents that have a high overlap with entrants subsequently engage in price competition by reducing management fees. Distribution fees, however, rise so that investors do not benefit as much from price competition. Funds with high overlap also experience quantity competition through lower investor flows, have lower alphas, and higher attrition rates. These effects only appear after the late 1990s, at which point there appears to be an endogenous structural shift in the competitive environment. We conclude that the mutual fund market has evolved into one that displays the hallmark features of a competitive market.

Keywords: Mutual funds, Incumbents, Competition

JEL Classification: G20, L10, L11

Suggested Citation

Wahal, Sunil and Wang, Yan Albert, Competition Among Mutual Funds (March 1, 2010). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN:

Sunil Wahal

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Yan Albert Wang (Contact Author)

Auburn University ( email )

315 Lowder Hall
Department of Finance
Auburn, AL 36849
United States

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