Investment Fund Demand and Financial Innovation

Advisor: Leonardo Rezende

This study aims to analyze investment fund demand within the context of recent financial innovations and the level of bank concentration in Brazil. Traditionally, a limited number of banks have dominated the sector, employing a closed-end architecture for fund distribution. The emergence of financial marketplaces has altered this landscape. Using a dynamic quantitative model inspired by Brown et al. (2023), we analyze the interplay between supply and demand for investment funds, accounting for investors’ diverse preferences and inertia and acknowledging the potential for price discrimination by investment fund managers across institutional and retail investors. This concise framework provides insights into the evolving dynamics of the Brazilian investment fund market. Results suggests a significant investor preference for investment funds offered by the same platform. Additionally, our model indicates a significant decline in inertia over time, attributed to the emergence of financial marketplaces and technological advancements.