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

59 Pages Posted: 6 Apr 2019 Last revised: 7 Jul 2019

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

Nova School of Business and Economics

Date Written: July 4, 2019

Abstract

Mutual fund intermediaries extract valuable information from their clients about their ex-ante investment horizon. Selecting share classes with front- or back-end loads reveals an explicit capital commitment which allows portfolio managers to better anticipate and manage flows. The information embedded in the share class choice of investors helps managers deliver performance by efficiently matching their investment choices to the underlying investment horizon of the retail investor. Mutual fund managers with less capital commitment, hold shares for shorter periods of time, hold more cash, more liquid stocks, and take less advantage of stocks with slow-moving arbitrage opportunities, i.e. fire sale stocks, and R&D intense stocks.

Keywords: mutual fund, share classes, investment horizon

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

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, Lisbon 1099-032
Portugal

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