Is it where you live, or how much you make and what you know? A look at the Geography of Mutual Fund Investing

This one should come as no surprise, but it is interesting none-the-less. Malloy and Zhu have a working paper that "provide[s] evidence that individual investors located in less affluent, less educated, and ethnic minority neighborhoods invest more in mutual funds with expensive load fees." Which I would wager that you would all have expected.

A more interesting question (and much more difficult to answer) is why is this so. Is it _____.

a. because low minimum investment funds tend to have higher expenses and those of us who can not afford the higher minimums are more or less forced to invest with the high fees?
b. because the less affluent have little experience investing therefore do not know that expenses eat a large percentage of one's return.
c. because more marketing is necessary (if we assume marketing is a means of reminding and informing) to get the less affluent to invest and this marketing costs money so the higher fees are a means of allowing the funds to recoup the expense.
d. a form of discrimination.
e. a, b, and c

I will answer e.


http://facultyresearch.london.edu/docs/mutualfundchoices.pdf