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Mathematical Problems in Engineering
Volume 2016, Article ID 8098092, 8 pages
Research Article

External Monitoring and Dynamic Behavior in Mutual Funds

1School of Business Administration, Northeastern University, Shenyang 110819, China
2Department of Economics, Acadia University, Wolfville, NS, Canada B4P 2R6
3School of Statistics, Jiangxi University of Finance and Economics, Nanchang 330013, China

Received 9 March 2016; Accepted 5 June 2016

Academic Editor: Xiaodong Lin

Copyright © 2016 Jian Wang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


This paper studies the impact of external monitoring on the behavior in mutual funds. Specifically, we investigate how and why external monitoring can alleviate contracting inefficiency caused by information asymmetry between investors and the manager. It is shown that efficiency loss emerges when investors contract with the manager just relying on her investment return history. The establishment of external monitoring that provides investors more information about the manager’s ability can improve contracting efficiency, which converges to first-best as external monitoring strengthens. These results provide strong support for tightening supervision in mutual fund industry.