Capital Commitment and Investment Decisions: The Role of Mutual Fund Charges
62 Pages Posted: 6 Apr 2019 Last revised: 9 Oct 2019
Date Written: July 4, 2019
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 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, intermediaries, investment horizon, liquidity management, fee structure
JEL Classification: G11, G23, J33, J44, L22, L25, L84, M12, M52
Suggested Citation: Suggested Citation