Indexing and active fund management: International evidence

Martijn Cremers, Miguel A. Ferreira, Pedro Matos, Laura Starks

Research output: Contribution to journalArticlepeer-review

133 Citations (Scopus)


We examine the relation between indexing and active management in the mutual fund industry worldwide. Explicit indexing and closet indexing by active funds are associated with countries' regulatory and financial market environments. We find that actively managed funds are more active and charge lower fees when they face more competitive pressure from low-cost explicitly indexed funds. A quasi-natural experiment using the exogenous variation in indexed funds generated by the passage of pension laws supports a causal interpretation of the results. Moreover, the average alpha generated by active management is higher in countries with more explicit indexing and lower in countries with more closet indexing. Overall, our evidence suggests that explicit indexing improves competition in the mutual fund industry.

Original languageEnglish
Pages (from-to)539-560
Number of pages22
JournalJournal of Financial Economics
Issue number3
Publication statusPublished - 1 Jun 2016


  • Active management
  • Competition
  • Exchange-traded funds
  • Fees
  • Index funds
  • Mutual funds
  • Performance


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