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The Economics of Mutual-Fund Brokerage: Evidence from the Cross Section of Investment Channels

37 Pages Posted: 23 Mar 2005 Last revised: 11 Dec 2011

Susan Kerr Christoffersen

University of Toronto - Rotman School of Management; Copenhagen Business School

Richard B. Evans

University of Virginia - Darden School of Business

David K. Musto

University of Pennsylvania - Finance Department

Date Written: December 20, 2005

Abstract

Retail investors often lack investment expertise. Mutual-fund brokers can help, but their incentives are mixed so it is an empirical question what value they add, both for consumers and for fund families. Investors pay more to invest through unaffiliated brokers than captive brokers, and while unaffiliated brokers add more value to redemptions, captive brokers add more value to inflows. No-load investors are less likely to sell their poor-performing funds and more likely to sell their winning funds, consistent with a disposition effect. Fund families benefit from a captive salesforce through recapture of redemptions, but also suffer through cannibalization of inflows.

Keywords: Mutual Fund, Financial Intermediary, Brokers

Suggested Citation

Christoffersen, Susan Kerr and Evans, Richard B. and Musto, David K., The Economics of Mutual-Fund Brokerage: Evidence from the Cross Section of Investment Channels (December 20, 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=687522 or http://dx.doi.org/10.2139/ssrn.687522

Susan E. Christoffersen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416 946 5647 (Phone)
416 971 3048 (Fax)

HOME PAGE: http://www.rotman.utoronto.ca/schristoffersen

Copenhagen Business School

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Richard B. Evans (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

David K. Musto

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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