Market frictions, investor sophistication, and persistence in mutual fund performance

Ariadna Dumitrescu, Javier Gil-Bazo

Research output: Indexed journal article Articlepeer-review

9 Citations (Scopus)


We extend the model of Berk and Green (2004) to investigate the impact of two frictions, search costs and financial constraints, on mutual fund performance. Our model predicts the survival of underperforming funds and delivers two new predictions: 1) differences in performance across funds are likely to persist; and 2) mutual funds targeted to less sophisticated investors should exhibit higher dispersion in expected performance. Using data on U.S. domestic diversified equity mutual funds we find empirical support for these predictions.

Original languageEnglish
Pages (from-to)40-59
Number of pages20
JournalJournal of Financial Markets
Publication statusPublished - Sept 2018
Externally publishedYes


  • Investor sophistication
  • Market frictions
  • Mutual fund performance persistence


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