Anna-Theresa Helmke, PhD Candidate at the Wharton School
Abstract: The goal of this project is to study how mutual funds and ETFs compete for investors’ capital. The current mainstream view appears to be that ETFs are cheaper, more tax-efficient, transparent and easier to trade than mutual funds, hence better for investors. Is this universally true for different investor types, and are mutual funds simply going to “die out” in the long-run? First, I aim to document new stylist facts regarding the competition between ETFs and mutual funds. Second, I plan to propose a model featuring investors with heterogeneous liquidity preferences, investment horizon and tax sensitivity to formally investigate investors’ optimal portfolio allocation decision between mutual funds and ETFs. Finally, I will test my model’s prediction using the entire time series of data on domestic U.S. equity and corporate bond funds from the CRSP Mutual Fund database.