Mutual fund returns are predictable when the Net Asset Value is computed from prices that do not reflect all available information. This problem was brought to the public eye with the late trading and market timing scandal of 2003, which led to SEC intervention in 2004. Since these events,...

I introduce a general equilibrium model with active investors and indexers. Indexing causes market segmentation, and the degree of segmentation is a function of the relative wealth of indexers in the economy. Shocks to this relative wealth induce correlated shocks to discount rates of index...

I present a dynamic investment model in which mutual funds' inferior performance is an equilibrium response to incentives rather than the consequence of low skills. In the model, a skilled (informed) manager responds to investors' flows, which are a convex function of performance relative to...

The internal markets of fund families can encourage member funds to deviate excessively from their investment mandates. Theoretically, we show that fund managers following sufficiently different style benchmarks can engage in risk-shifting by trading with one another at low cost inside their...

We document a systematic seasonal component in the aggregate underperformance of active mutual funds. At the aggregate level, active funds underperform the market and other passive benchmarks only in the first month of a quarter. This intra-quarter performance seasonality holds across fund sizes...

We show that risk-sharing considerations rationalize symmetric benchmark-adjusted ("fulcrum") fees in the compensation of informed active fund management. By tying fees symmetrically to the appropriate benchmark, investors can tilt a fund portfolio toward their optimal risk exposure and realize...