Abstract
We study whether the choice of sales fee structure among mutual fund investors reveals valuable information about their investment horizon. We show that funds manage liquidity more efficiently and improve performance by timely matching their investment choices to the underlying investment horizon of their investors. Mutual funds with more committed capital hold shares longer, invest in more illiquid stocks, and take advantage of securities with slow-moving arbitrage opportunities. Our results suggest that financial intermediaries add value by offering investors the ability to select a fee structure that is most appropriate for their investment horizon. This evidence reveals an overlooked shadow cost of disintermediation in the mutual fund industry.
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