Mutual Fund Choices and Investor Demographics

We test the hypothesis that investment in actively managed mutual funds is linked to investor clienteles. We document that individual investors located in less affluent, less educated, and ethnic minority neighborhoods invest more in funds with expensive load fees. They also tend to invest a disproportionate amount in funds with no minimum-balance requirements, and find fewer funds and (fewer no-load funds in particular) to invest in. Our results suggest that less sophisticated neighborhoods may be faced with an inferior investment opportunity set. We find no evidence that investors in these areas tend to trade significantly more or are more likely to redeem their fund holdings each year. ∗Malloy is at London Business School; Zhu is at the Graduate School of Management, UC Davis. We thank seminar participants at London Business School for helpful comments and suggestions. Please send correspondence to: Christopher Malloy, London Business School, Sussex Place, Regent’s Park, London NW1 4SA, UK, phone: 44-207-262-5050 x3278, email: [email protected]. Mutual Fund Choices and Investor Demographics