Download this Paper Open PDF in Browser

Estimating the Intensity of Choice in a Dynamic Mutual Fund Allocation Decision

19 Pages Posted: 13 Jun 2006 Last revised: 2 May 2017

David Goldbaum

University of Technology Sydney

Bruce Mizrach

Rutgers University, Department of Economics

Date Written: February 12, 2008

Abstract

The paper analyzes the intensity of choice in an agent based financial optimization problem. Mean-variance optimizing agents choose among mutual funds of similar styles but varying performance. We specify a model for the allocation of new funds, switching between funds, and withdrawals and obtain statistically significant estimates of the intensity of choice parameter. This estimate is also given economic interpretation through the underperformance of funds that use an active style. We find that agents with relative risk aversion of 2 will move 1% of their funds from
active to passive for an extra 34 basis points of return.

Keywords: heterogenous agents, intensity of choice, mutual funds

JEL Classification: G11

Suggested Citation

Goldbaum, David and Mizrach, Bruce, Estimating the Intensity of Choice in a Dynamic Mutual Fund Allocation Decision (February 12, 2008). Available at SSRN: https://ssrn.com/abstract=907508 or http://dx.doi.org/10.2139/ssrn.907508

Bruce Mizrach (Contact Author)

Rutgers University, Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States
(848) 932-8636 (Phone)
(732) 932-7416 (Fax)

HOME PAGE: http://snde.rutgers.edu/

Paper statistics

Downloads
104
Rank
220,311
Abstract Views
881