Measuring Innovation and Product Differentiation: Evidence from Mutual Funds

Kostovetsky, Leonard; Warner, Jerold B.

doi:10.1111/jofi.12853

Cited by 59 publications

(9 citation statements)

References 37 publications

(69 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In the specialized segment, multiple differentiated products 17 Product differentiation is computed for each category as one minus the cosine similarity between the ETF portfolio weights and the weights of the aggregate portfolio of all ETFs in that category that exist in the market at that point in time. Kostovetsky and Warner (2020) develop an alternative measure of product differentiation for active mutual funds using textual analysis of the fund prospectus. They show that despite differentiation in strategy description, mutual fund holdings are similar.…”

Section: Segmentation Along the Fees And Diversification Dimensionsmentioning

confidence: 99%

Competition for Attention in the ETF Space

Ben‐David

Franzoni

Kim

et al. 2022

The Review of Financial Studies

View full text Add to dashboard Cite

The interplay between investors’ demand and providers’ incentives has shaped the evolution of exchange-traded funds (ETFs). While early ETFs invested in broad-based indexes and therefore offered diversification at low cost, more recent products track niche portfolios and charge high fees. Strikingly, over their first 5 years, specialized ETFs lose about 30% (risk-adjusted). This underperformance cannot be explained by high fees or hedging demand. Rather, it is driven by the overvaluation of the underlying stocks at the time of the launch. Our results are consistent with providers catering to investors’ extrapolative beliefs by issuing specialized ETFs that track attention-grabbing themes.

show abstract

Section: Segmentation Along the Fees And Diversification Dimensionsmentioning

confidence: 99%

Competition for Attention in the ETF Space

Ben‐David

Franzoni

Kim

et al. 2022

The Review of Financial Studies

View full text Add to dashboard Cite

show abstract

“…It is well known that there exists a strong correlation between past risk‐adjusted returns and fund flows (Sirri & Tufano, 1998). Kostovetsky and Warner (2019) also find a positive relationship between past flows and performance, but text‐based uniqueness seems to make flows less sensitive to past performance. The authors then analyze whether there is a more significant impact on inflows rather than outflows.…”

Section: Marketing and Liquidity Provision In Fund Familiesmentioning

confidence: 99%

“…A recent paper by Kostovetsky and Warner (2019) focusses on product innovation in the fund industry. It is apparently the first paper to use text‐based measures from prospectuses to measure product differentiation of the fund.…”

Section: Marketing and Liquidity Provision In Fund Familiesmentioning

confidence: 99%

“…Kostovetsky and Warner (2019) analyze the prospectuses provided by the Morningstar database. More exactly, they analyze the overlap of words with other funds in the same Morningstar category.…”

Section: Marketing and Liquidity Provision In Fund Familiesmentioning

confidence: 99%

“…The explanation is straightforward as there are significant fixed costs in starting new funds. Kostovetsky and Warner (2019) show, however, that the rate of innovation is higher for smaller fund families in the sense that they start more new funds per number of existing funds in the family. Empirically, this start rate is approximately 5% yearly for the smallest families but goes down to 2% per year for the biggest families.…”

Section: Marketing and Liquidity Provision In Fund Familiesmentioning

confidence: 99%

See 2 more Smart Citations

Behavioral finance and the architecture of the asset management industry

Verlaine¹

2022

Journal of Economic Surveys

View full text Add to dashboard Cite

The standard portfolio approach assumes that investors maximize expected utility, and that the Markowitz mean-variance standard portfolio optimization approach can be applied. Behavioral research, however, indicates that investors' behavior with respect to risk or uncertainty is not consistent with expected utility. Notably, decision makers transform probabilities. Most of the academic literature integrating those aspects, however, focuses on so-called financial market anomalies but does not focus on the structural impact those behavioral aspects might have, notably in terms of industrial organization of the asset management industry. This paper provides a survey of the asset management industry and argues that the architecture of the asset management industry is inconsistent with the standard expected utility framework. The origin of the industrial organization of the asset management industry stems from the convexity of the flow-performance relationship, which is due to prospect theory effects.The convexity of the flow-performance relationship explains the inflation of mutual funds and fund families, a phenomenon inconsistent with the Mutual Fund Separation Theorem.

show abstract

Spotting Portfolio Greenwashing in Environmental Funds

Abouarab,

Mishra,

Wolfe

2024

J Bus Ethics

View full text Add to dashboard Cite

This paper examines greenwashing practices in environmental funds. We utilize a unique data set of US equity mutual fund holdings between 2012 and 2021 to calculate the funds’ carbon footprints. Using a difference-in-differences analysis, we find that, following their commitments to sustainability, environmental funds fail to reduce their carbon footprints relative to a matched group of conventional funds. We also find, using an event study, a significant increase in the flows of environmental funds in response to these commitments. The combination of the failure to reduce carbon footprints and the surge in inflows provides evidence of greenwashing by environmental funds, raising concerns about their fiduciary duty. Our findings also show that greenwashers tend to initially have low flows and high portfolio carbon emissions suggesting that they announce their commitments to sustainability just to attract investors.

show abstract

Measuring Innovation and Product Differentiation: Evidence from Mutual Funds

Cited by 59 publications

References 37 publications

Competition for Attention in the ETF Space

Competition for Attention in the ETF Space

Behavioral finance and the architecture of the asset management industry

Spotting Portfolio Greenwashing in Environmental Funds

Contact Info

Product

Resources

About