Review of Financial Studies Vol. 31 No. 2 2018
Cross-Subsidization in Institutional Asset Management Firms
Abstract
We study cross-subsidization among U.S. equity products managed by institutional asset management firms. We find returns-based evidence consistent with both cross-subsidization receipt by strong recent performers that are relatively small in their firms and provision by products that are relatively large in their firms. Tax-exempt investors and taxable investors do not have a clear ranking by expertise, but tax-exempt investors’ agency issues are more complex. Accordingly, taxable clients have more flow-performance nonlinearity and receive more (and provide less) cross-subsidization. Taxable investor flows appear more discerning, but only under the circumstances conducive to cross-subsidization, suggesting that “more discerning” likely means “more cross-subsidized.”
- Volume
- 31
- Issue
- 2
- Pages
- 638-677
- Sources
- bibtex:phds-export.bib