How Rational and Competitive is the Market for Mutual Funds?

58 Pages Posted: 6 Feb 2018 Last revised: 6 Jun 2019

See all articles by Markus Leippold

Markus Leippold

University of Zurich; Swiss Finance Institute

Roger Rüegg

University of Zurich - Department Finance; Cantonal Bank of Zurich

Date Written: June 2, 2019


To explore the rationality and competitiveness of the mutual fund industry, we analyze the alpha of active and index mutual funds from a global sample of more than 60,000 equity and fixed income funds and test the null hypothesis that alphas to investors are zero. We distinguish between institutional and retail investors since there are significant differences in management fees, economies of scale, and information asymmetries between these two groups. Using a new robust statistical test, we cannot reject our null hypothesis for the vast majority of investment categories. We find that the average active fund has less exposure to traditional risk factors, but higher sensitivity to alternative risk premia. Fund persistence and the impact of size and fees add further support to our conclusion that the mutual fund industry is highly competitive, except for US domestic funds. This set of funds is excessively overfunded compared to other fund categories.

Keywords: active investing, index investing, mutual funds, robust alpha test

JEL Classification: C12, G10, G11, G20, G23

Suggested Citation

Leippold, Markus and Rüegg, Roger, How Rational and Competitive is the Market for Mutual Funds? (June 2, 2019). Available at SSRN: or

Markus Leippold (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006

Swiss Finance Institute ( email )

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

Roger Rüegg

University of Zurich - Department Finance ( email )


Cantonal Bank of Zurich ( email )

Josefstrasse 222
Zurich CH-8010, 8005
0041442924689 (Phone)

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