Mutual Fund Heterogenity and Fee Dispersion
30 Pages Posted: 2 Mar 2013 Last revised: 11 Mar 2016
Date Written: April 4, 2014
Abstract
The purpose of this study is to discuss research that identifies heterogeneous mutual fund and investor attributes and relations that explain dispersion in fund fees. One might think there is a short list of attributes and relations, such as high versus low expense ratios, that tells the full story of fund fee dispersion, but the story is much more extensive and nuanced. The research topics discussed are not inclusive of heterogeneous fund and investor attributes and relations that generate dispersions in fund fees, but they do provide depth within particular research domains.
Select findings for discussions of factors influencing dispersion of mutual fund fees include: (1) Fund competition and agency conflicts importantly determine fund pricing; (2) Fee dispersion primarily arises from heterogeneity of products, clienteles, and production functions; (3) Negative relations between fees and performance is due to fund strategic fee-setting and investor sensitivity to performance; (4) Investor perceptions of fund markets are key to fund fee-setting mechanisms; (5) Funds segment investors by level of investment sophistication and sell high cost funds to less-knowledgeable investors; and (6) Fees are lower with small sized boards, boards with relatively more independent directors, and relatively more directors sitting on large proportions of other sponsor funds.
Keywords: mutual funds, fees, strategic fee setting, performance sensitivity, excessive fees, multiple share
JEL Classification: G2, G23, G28
Suggested Citation: Suggested Citation
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