We test the predictions of the theoretical literature initiated by the study of Domar and Musgrave (1944) with a laboratory experiment in which subjects have to decide on the composition of an asset portfolio. Our simple design enables us to distinguish between Real Tax Effects and Perception...

The active mutual fund equilibrium model developed by Berk and Green (2004) predicts that fees should not matter for investors’ mutual fund choices. We examine how fees influence demand for active mutual funds by analyzing time variation in funds’ fees. Since investors should not pay "alpha...

Limited partnerships are attractive investment vehicles for investors because, as limited partners, investors cannot lose more than their invested capital despite the leverage of the partnership's portfolio. Consistent with this, the availability of tax losses to a limited partner is also more...

Active fee is the ratio between the excess cost of active management over the index alternative and the fund's activity level. We suggest a simple model that explains active capital allocations in the presence of time-varying active fee. We show that investors respond in accordance with the...