Recent studies (e.g. Gruber (1996)) conclude that a subset of investors allocates away from funds with relatively worse prospects, and toward funds with better prospects. The implication for a given fund is that good prospects increase the density of performance-sensitive investors, and bad prospects increase the density of performance-insensitive investors. Since fees come out of performance, this has a straightforward pricing implication: investors remaining in the funds with bad prospects should be charged more, whether by the same fund or by a different fund that absorbs the investors. This dynamic is apparent from several angles in a sample of retail money-funds.
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