We propose a theoretical model where mutual funds compete for investors and investors, in turn, can hold portfolios of mutual fund shares. Many equilibria are possible. With investor limited liability and a refinement requiring robustness to joint deviations, a focal equilibrium survives. We test the emergence of such a focal equilibrium in a large scale experiment and find strong suggestive evidence in its favor.
Competition in portfolio management: theory and experiment
MELOSO, DEBRAH
2015
Abstract
We propose a theoretical model where mutual funds compete for investors and investors, in turn, can hold portfolios of mutual fund shares. Many equilibria are possible. With investor limited liability and a refinement requiring robustness to joint deviations, a focal equilibrium survives. We test the emergence of such a focal equilibrium in a large scale experiment and find strong suggestive evidence in its favor.
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