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

David Goldbaum

University of Technology Sydney

Bruce Mizrach

Rutgers University, Department of Economics

February 12, 2008

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.

Number of Pages in PDF File: 19

Keywords: heterogenous agents, intensity of choice, mutual funds

JEL Classification: G11

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Date posted: June 13, 2006 ; Last revised: April 10, 2008

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

Contact Information

David Goldbaum
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/
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