publication . Preprint . 2004

Mutual Fund Competition and Stock Market Liquidity

Massa, Massimo;
Open Access
  • Published: 01 Dec 2004
Abstract
We study how competition in the mutual fund industry affects stock market liquidity. We argue that mutual fund families operate as multi-product firms, jointly choosing fees, performance and number of funds and sharing common research facilities. The family-based organization generates economies of scale in information that induce a trade off between performance and number of funds. The presence of more and relatively less-informed funds impacts the market, increasing stock liquidity. This intuition allows us to use ‘observable’ equilibrium conditions in the mutual fund market that are related to fund informativeness (i.e., fees, size and performance of the fund...
Subjects
free text keywords: financial intermediation; mutual funds; stock liquidity, jel:G11, jel:G12, jel:G14
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