Mutual Fund Competition in the Presence of Dynamic Flows

Posted: 10 Sep 2008 Last revised: 29 Feb 2012

See all articles by Michèle Breton

Michèle Breton

HEC Montreal - Department of Management Sciences

Julien Hugonnier

Swiss Federal Institute of Technology Lausanne - Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Tarek Masmoudi

Caisse de dépôt et Placement du Québec

Date Written: September 1, 2008

Abstract

This paper analyzes competition between mutual funds in a multiple funds version of the model of Hugonnier and Kaniel. We characterize the set of equilibria for this delegated portfolio management game and show that there exists a unique Pareto optimal equilibrium. The main result of this paper shows that the funds cannot differentiate themselves through portfolio choice in the sense that they should offer the same risk/return tradeoff in equilibrium. This result brings theoretical support to the findings of recent empirical studies on the importance of media coverage and marketing in the mutual funds industry.

Keywords: portfolio management, asset-based management fees, mutual funds, dynamic flows, stochastic differential game

JEL Classification: G11, G12, C61

Suggested Citation

Breton, Michèle and Hugonnier, Julien and Masmoudi, Tarek, Mutual Fund Competition in the Presence of Dynamic Flows (September 1, 2008). Swiss Finance Institute Research Paper No. 08-26. Available at SSRN: https://ssrn.com/abstract=1265006 or http://dx.doi.org/10.2139/ssrn.1265006

Michèle Breton

HEC Montreal - Department of Management Sciences ( email )

Montreal, Quebec H3T 2A7
Canada
514-340-6490 (Phone)
514-340-5634 (Fax)

Julien Hugonnier (Contact Author)

Swiss Federal Institute of Technology Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL Dorigny
Extranef
Lausanne, CH-1015
Switzerland

HOME PAGE: http://sfi.epfl.ch/hugonnier

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Tarek Masmoudi

Caisse de dépôt et Placement du Québec ( email )

1000, place Jean-Paul-Riopelle
Montreal, Quebec H2Z 2B3
Canada
514-982-5821 (Phone)

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