The Economics of Mutual Fund Marketing

66 Pages Posted: 22 Nov 2022 Last revised: 22 May 2023

See all articles by Jane Chen

Jane Chen

Department of Finance, London School of Economics

Wenxi Jiang

CUHK Business School, The Chinese University of Hong Kong

Mindy Z. Xiaolan

University of Texas, Austin - Department of Finance

Date Written: November 14, 2022

Abstract

We uncover a significant relationship between the persistence of marketing employment strategy and fund performance in the U.S. mutual fund industry. Using regulatory filings, we show a large heterogeneity in fund companies' marketing employment share, the share of employment devoted to marketing and sales. Not only that the marketing employment share increase in family size and predicts subsequent fund flows, but it is also persistent across fund families. A framework based on Bayesian persuasion and costly learning helps to explain the observed strategic marketing decision. As the optimal marketing plan, fund companies with different skill types commit to heterogeneous marketing employment strategies: conditional on the skill level, fund companies' optimal marketing employment share responds to their past performance differently. Low-skill funds only conduct marketing following the sufficiently good past performance, while high-skill funds maintain a high marketing employment share even with poor past performance. Consistent with the model prediction, we show that the volatility of the marketing ratio is negatively correlated with the long-term performance of fund companies.

Keywords: Marketing Employment Share, Persistence Marketing, Bayesian Persuasion, Costly Learning

Suggested Citation

Chen, Jane and Jiang, Wenxi and Xiaolan, Mindy Z., The Economics of Mutual Fund Marketing (November 14, 2022). Available at SSRN: https://ssrn.com/abstract=4277000 or http://dx.doi.org/10.2139/ssrn.4277000

Jane Chen

Department of Finance, London School of Economics ( email )

Houghton Street
London, England WC2A 2AE
Great Britain

HOME PAGE: http://https://www.janejingxuanchen.com/

Wenxi Jiang

CUHK Business School, The Chinese University of Hong Kong ( email )

Room 1210, Cheng Yu Tung Building
Chinese University of Hong Kong
Shatin, NT 06520
Hong Kong

HOME PAGE: http://https://sites.google.com/site/jiangwenxi/

Mindy Z. Xiaolan (Contact Author)

University of Texas, Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

HOME PAGE: http://sites.google.com/view/mindyxiaolan

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