Forced to Be Active: Evidence From a Regulation Intervention

58 Pages Posted: 17 Jul 2020 Last revised: 27 Sep 2023

See all articles by Petter Bjerksund

Petter Bjerksund

Norwegian School of Economics (NHH) - Department of Business and Management Science

Trond Døskeland

NHH Norwegian School of Economics

André Wattø Sjuve

Norwegian School of Economics (NHH)

Andreas Ørpetveit

Norwegian School of Economics (NHH)

Date Written: November 23, 2020

Abstract

Closet indexers are low-activity mutual funds, marketed and sold as active. Therefore, their investors receive only part of the service they pay for. Supervisory authorities around the world are considering how these funds should be regulated. We examine evidence from interventions carried out by Scandinavian regulators. Scrutinized Scandinavian funds, compared with similar unaffected European ones, choose increased activity over fee reduction. This leads to more active management, but also to a significant decrease in alpha of approximately 2%. Thus, regulation leads to the most unfavorable outcome for investors.

Keywords: Asset management; Active portfolio management; Regulation of financial services

JEL Classification: D14, G11, K12

Suggested Citation

Bjerksund, Petter and Døskeland, Trond and Sjuve, André and Ørpetveit, Andreas, Forced to Be Active: Evidence From a Regulation Intervention (November 23, 2020). Available at SSRN: https://ssrn.com/abstract=3635718 or http://dx.doi.org/10.2139/ssrn.3635718

Petter Bjerksund

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Trond Døskeland (Contact Author)

NHH Norwegian School of Economics ( email )

Helleveien 30
Bergen, NO-5045
Norway

André Sjuve

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Andreas Ørpetveit

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

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