Investors' distraction and strategic repricing decisions

Navone, M

Investors' distraction and strategic repricing decisions

Navone, M

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Publisher:: Elsevier Inc
Publication Type:: Journal Article
Citation:: Navone Marco 2012, 'Investors' distraction and strategic repricing decisions', Elsevier Inc, vol. 36, no. 5, pp. 1291-1303.
Issue Date:: 2012

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Field	Value	Language
dc.contributor.author	Navone, M	en_US
dc.date.accessioned	2012-10-12T03:32:49Z
dc.date.available	2012-10-12T03:32:49Z
dc.date.issued	2012	en_US
dc.identifier	2011002342	en_US
dc.identifier.citation	Navone Marco 2012, 'Investors' distraction and strategic repricing decisions', Elsevier Inc, vol. 36, no. 5, pp. 1291-1303.	en_US
dc.identifier.issn	0378-4266	en_US
dc.identifier.other	C1	en_US
dc.identifier.uri	http://hdl.handle.net/10453/17956
dc.description.abstract	In this paper I analyze investors' reactions to changes in the expense ratios of equity mutual funds. I show that investment flows' response to fees cannot be fully explained by looking at investors' performance sensitivity. While performance sensitivity monotonically increases with past performance, price sensitivity does not: investors who buy top past performers seem to be "distracted" by the fund's previous return and pay relatively little attention to the expense ratios. Moreover price sensitivity increases with fund visibility while performance sensitivity decreases, and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity, price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds' information for retail investors. Finally I show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities, and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior.	en_US
dc.publisher	Elsevier Inc	en_US
dc.relation.ispartof	Verified OK	en_US
dc.relation.ispartof	Journal of Banking and Finance	en_US
dc.relation.hasversion	Accepted manuscript version	en_US
dc.relation.isbasedon	http://dx.doi.org/10.1016/j.jbankfin.2011.11.018	en_US
dc.rights	NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Banking & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking & Finance, [Volume 36, Issue 5, May 2012, Pages 1291–1303] DOI# http://dx.doi.org/10.1016/j.jbankfin.2011.11.018	en_US
dc.subject	Mutual funds; Expense ratios; Price sensitivity	en_US
dc.subject.classification	Applied Mathematics	en_US
dc.title	Investors' distraction and strategic repricing decisions	en_US
dc.type	Journal article
utslib.citation.volume	36	en_US
utslib.citation.number	5	en_US
utslib.location	Netherlands	en_US
utslib.citation.startpage	1291	en_US
utslib.citation.endpage	1303	en_US
utslib.identifier.org	BUS.Finance	en_US
utslib.for	010200	en_US
utslib.percentage	000050	en_US
utslib.copyright.status	open_access

Abstract:

In this paper I analyze investors' reactions to changes in the expense ratios of equity mutual funds. I show that investment flows' response to fees cannot be fully explained by looking at investors' performance sensitivity. While performance sensitivity monotonically increases with past performance, price sensitivity does not: investors who buy top past performers seem to be "distracted" by the fund's previous return and pay relatively little attention to the expense ratios. Moreover price sensitivity increases with fund visibility while performance sensitivity decreases, and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity, price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds' information for retail investors. Finally I show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities, and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior.

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http://hdl.handle.net/10453/17956