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

42 Pages Posted: 6 Apr 2019 Last revised: 30 Apr 2021

See all articles by Juan-Pedro Gomez

Juan-Pedro Gomez

IE Business School - IE University

Melissa Porras Prado

Nova School of Business and Economics; Centre for Economic Policy Research (CEPR)

Rafael Zambrana

University of Notre Dame - Mendoza College of Business

Date Written: March 13, 2020

Abstract

We study whether the choice of sales fee structure among mutual fund investors reveals valuable information about their investment horizon. We show that funds manage liquidity more efficiently and 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. Our results suggest that financial intermediaries add value by offering investors the ability to select a fee structure that is most appropriate for their investment horizon. 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 (March 13, 2020). 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 Carcavelos
Rua da Holanda 1
Carcavelos, 2775-405
Portugal

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Rafael Zambrana

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

Notre Dame, IN 46556-5646
United States

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