Forced to Be Active: Evidence From a Regulation Intervention

46 Pages Posted: 17 Jul 2020 Last revised: 23 Nov 2020

See all articles by Petter Bjerksund

Petter Bjerksund

Norwegian School of Economics (NHH) - Department of Business and Management Science

Trond Døskeland

Norwegian School of Economics (NHH); NHH Norwegian School of Economics

André Wattø Sjuve

Norwegian School of Economics (NHH)

Andreas Ørpetveit

Norwegian School of Economics (NHH)

Date Written: November 23, 2020

Abstract

Closet indexers are low-activity mutual funds sold and marketed as active. Their investors are thus only partially receiving the service they pay for. Therefore, regulation is considered by supervisory authorities worldwide. We examine the impact of policy scrutiny by comparing scrutinized closet index funds in Scandinavia with similar unaffected European funds. We find that funds under scrutiny choose to increase activity over reducing fees and updating their investor information to reflect realized strategy. Despite investors getting a more actively managed fund, our findings suggest that value creation decreases. Regulation thus results in the worst of all worlds.

Keywords: Asset management; Active portfolio management; Regulation of financial services

JEL Classification: D14, G11, K12

Suggested Citation

Bjerksund, Petter and Døskeland, Trond and Døskeland, Trond and Sjuve, André and Ørpetveit, Andreas, Forced to Be Active: Evidence From a Regulation Intervention (November 23, 2020). Available at SSRN: https://ssrn.com/abstract=3635718 or http://dx.doi.org/10.2139/ssrn.3635718

Petter Bjerksund

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Trond Døskeland (Contact Author)

NHH Norwegian School of Economics ( email )

Helleveien 30
Bergen, NO-5045
Norway

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

André Sjuve

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Andreas Ørpetveit

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

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