An Empirical Demand-and-Supply Framework of the Asset Management Industry

Marco Loseto, Economics PhD student

This project has two goals. The first one is to propose an empirical demand-and-supply framework of the asset management industry. The second one is to use the framework to study the welfare implications of the rise of the passive investment. The demand side features mean-variance heterogenous investors that allocate their wealth across the investment options avaiable in their investment plan. The supply side instead features an oligopoly of multi-product investment advisors with heterogenous costs and differentiated products that set fees simultaneously. I show that mutual funds market shares, scaled by their idiosyncratic risk, are linear in feed and factor exposures and thus the model can be estimated through a simple IV strategy. I then plan to use th emodel estimates to recover advisors' markups, investors' welfare, and study their evolution overtime. How those have changed is a priority not obvious because while industry concentration increased, passive options offer high diversification at a low cost.