Capital Commitment and Investment Decisions: The Role of Mutual Fund Charges

59 Pages Posted: 6 Apr 2019 Last revised: 19 Feb 2020

See all articles by Juan-Pedro Gomez

Juan-Pedro Gomez

IE Business School - IE University

Melissa Porras Prado

Nova School of Business and Economics

Rafael Zambrana

University of Notre Dame - Mendoza College of Business

Date Written: July 4, 2019

Abstract

Many investors purchase open-end mutual funds through intermediaries, paying brokers and financial advisors for fund distribution and advice. We argue these intermediaries can extract valuable information about the investment horizon of their clients. That allows portfolio managers to manage liquidity more efficiently, and to improve performance by timely matching their investment choices to the underlying investment horizon of their investors. Mutual funds with more committed capital hold shares longer, invest in more illiquid stocks, and take advantage of securities with slow-moving arbitrage opportunities, i.e., fire-sale stocks, and R&D-intensive stocks. This evidence reveals an overlooked shadow cost of disintermediation in the mutual fund industry.

Keywords: mutual fund, intermediaries, investment horizon, liquidity management, fee structure

JEL Classification: G11, G23, J33, J44, L22, L25, L84, M12, M52

Suggested Citation

Gomez, Juan-Pedro and Porras Prado, Melissa and Zambrana, Rafael, Capital Commitment and Investment Decisions: The Role of Mutual Fund Charges (July 4, 2019). Available at SSRN: https://ssrn.com/abstract=3353344 or http://dx.doi.org/10.2139/ssrn.3353344

Juan-Pedro Gomez

IE Business School - IE University ( email )

Calle Maria de Molina 12
Madrid, Madrid 28006
Spain
+34 917821326 (Phone)

HOME PAGE: http://www.ie.edu/faculty/juan-pedro-gomez/

Melissa Porras Prado (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Rafael Zambrana

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

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