Research work · 2002

Externalities of Open-end Fund

Huang Yu

Journal of Tongji University

Abstract

Investors holding open end fund should face the classic externality.The after-tax return of their investment relies on the behavior of other investors and fund management.In particular, redemptions may force fund to sell some of its equities to pay off the liquidating investors,so part of taxable capital gain must be distributed.On the other hand,new investors convey a positive externality upon existing investors by diluting unrealized capital gain.The other stimulation shows that the different cost accounting method will lead to different externality for existing investors.