Abstract
As discussed in previous chapters, the Investment Company Act was designed to protect investors from financial abuse of their interests by advisers of mutual funds. One important dimension of the perceived need for such regulation was the determination of the fees charged by mutual fund advisers. It has been suggested that advisers are in the enviable position of being able to set fees that are excessively high with little or no risk of driving their customers away. Underlying this view is the perception that the nature of the contract between the investment adviser and the mutual fund denies investors the opportunity to replace the adviser if his behavior is unacceptable. This view assumes implicitly that mutual fund shareholders are either unable or unlikely to discipline the adviser by shopping around for the most attractive place to invest their money.
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See Sherman Maisel and Kenneth Rosen, Macroeconomics of Money Market Mutual Funds, Working Paper 82-56, Center for Real Estate and Urban Economics, University of California, Berkeley (December 1982). The authors have investigated the influence of money market funds on consumer interest rate elasticities, maturity preferences, and sensitivity to risk. The econometric results obtained confirm that investors react to rate differentials among financial assets. Their results also suggest that the introduction of MMDAs caused an increase in the degree of sensitivity to interest rate differentials.
For a discussion, see Eugene Fama and Merton Miller, The Theory of Finance (New York: Holt, Rinehart, and Winston, 1972), and Fama, Foundations of Finance (New York: Basic Books, 1976).
For a discussion of the relative elasticity of industry and individual firm demand, see William M. Landes and Richard A. Posner, “Market Power in Antitrust Cases,” Harvard Law Review, vol. 94, no. 5 (1981), 937–996; and Ordover, Sykes, and Willig, “Herfindahl Concentration, Rivalry, and Mergers,” Harvard Law Review, vol. 95, no. 8 (1982), 1857–1874.
This procedure was used successfully by S. M. Goldfeld, “Savings and Loan Associations and the Market for Savings,” A Study of the Savings and Loan Industry, vol. 2, I. Friend, ed., Federal Home Loan Bank Board (1969), 569–658. We should also note that we are using actual net yields as a proxy for expected returns.
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© 1990 Kluwer Academic Publishers
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Baumol, W.J., Goldfeld, S.M., Gordon, L.A., Koehn, M.F. (1990). The Demand for Money Market Mutual Funds. In: The Economics of Mutual Fund Markets: Competition Versus Regulation. Rochester Studies in Economics and Policy Issues, vol 7. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-2185-6_7
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DOI: https://doi.org/10.1007/978-94-009-2185-6_7
Publisher Name: Springer, Dordrecht
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