Cost of Time and Household Choice between Direct and Delegated Investment

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Abstract
This study investigates households' decision between direct equity investment and indirect investment through mutual funds. We present evidence that the tendency to invest through delegated portfolio management (i.e. mutual funds) versus direct investing is significantly influenced by households' cost of time. Households with greater professional engagement, personal responsibilities, and less leisure time, proxies for higher cost of time, invest more in mutual funds relative to direct investment. The results are robust when controlling household risk-aversion and investment abilities. The findings underscore how search costs influence household financial decision-making and the growth of mutual fund industry.

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