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Int. J. Financial Stud. 2018, 6(1), 29; https://doi.org/10.3390/ijfs6010029

Impact of Competition on Mutual Fund Marketing Expenses

Graduate School of Management, Clark University, Worcester, MA 01610, USA
Received: 6 February 2018 / Revised: 26 February 2018 / Accepted: 26 February 2018 / Published: 6 March 2018
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Abstract

In this paper, I study the impact of market competition on mutual fund marketing expenses. In a sample of US domestic equity mutual funds, I find that marketing expenses decrease with the competition. This effect is stronger for top-performing funds. These results are counterintuitive, as one would ordinarily expect funds to incur more marketing expenses in response to pressure from competing funds. However, these results support the narrative that mutual funds employ marketing to draw attention to their performance in a tournament-like market, where the top-performing funds (the winners) are rewarded with disproportionately high new investments. Higher competition decreases the chances of each fund to outperform the others and adversely affect their ability to attract new investments, and the funds respond by decreasing marketing expenses. Thus, competition appears to have implications for investor search cost. View Full-Text
Keywords: mutual fund; competition; marketing expenses; 12b1 fee; investor search cost mutual fund; competition; marketing expenses; 12b1 fee; investor search cost
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Parida, S. Impact of Competition on Mutual Fund Marketing Expenses. Int. J. Financial Stud. 2018, 6, 29.

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