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Journal of Finance Vol. 68 No. 1 2013

What Do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives

Susan E. K. Christoffersen1,2,3,4,5,6; Richard B. Evans1,2,3,4,5,6; David K. Musto7

1 Copenhagen Business School · 2 University of Toronto · 3 Visiting Nurse Association · 4 University of Virginia · 5 University at Buffalo, State University of New York · 6 University of Pennsylvania · 7 Social Sciences and Humanities Research Council

open access

Abstract

We ask whether mutual funds’ flows reflect the incentives of the brokers intermediating them. The incentives we address are those revealed in statutory filings: the brokers’ shares of sales loads and other revenue, and their affiliation with the fund family. We find significant effects of these payments to brokers on funds’ inflows, particularly when the brokers are not affiliated. Tracking these investments forward, we find load sharing, but not revenue sharing, to predict poor performance, consistent with the different incentives these payments impart. We identify one benefit of captive brokerage, which is the recapture of redemptions elsewhere in the family.

DOI
10.1111/j.1540-6261.2012.01798.x
Volume
68
Issue
1
Pages
201-235
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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