When cheaper is better: Fee determination in the market for equity mutual funds

Gil-Bazo, Javier; Ruiz‐Verdú, Pablo

doi:10.1016/j.jebo.2007.04.003

Cited by 69 publications

(26 citation statements)

References 37 publications

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“…The consensus findings of the present study between fees and expenses structure and fund performance highlight the negative and significant relation between manager fees and fund performance, as well as, EXR and fund performance in line with the previous studies of Malkiel (1995), Hooks (1996), Carhart (1997), Dellva and Olson (1998), Dahlquist et al (2000), Gil-Bazo and Ruiz-Verdú (2008;, and Vidal et al (2015). However, the findings also show that MER has no association with fund performance.…”

Section: Does the Price Matter In Paying-off Good Return?supporting

confidence: 89%

“…On the effect between expenses and fund performance, Malkiel (1995), Dahlquist, Engstrom and Soderlind (2000), Gil-Bazo and Ruiz-Verdú (2008;, and Vidal, Vidal-Garcia, Lean and Gazi (2015) have documented a negative relationship between mutual fund fees and before-fee performance. More recently, the negative association persists on net-fee performance (Robinson & Sensoy, 2013) and return predictability (Vidal et al, 2015).…”

Section: Literature Review and Hypotheses Statementmentioning

confidence: 99%

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The Fund Characteristics, Fees, and Expenses Structure Between Conventional and Islamic Mutual Fund

Fikri¹,

Yahya²

2019

AAMJAF

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Shariah principle is notoriously known as the key feature underlying the function of assets management in Islamic financial institutions. The underlined principle highly requires fund managers to consistently manage the fund portfolio in accordance to a legitimate set of rules. As a result, Islamic mutual fund may have distinguishable characteristics, and more importantly, the fund fees and expenses structure. This article studies the fund characteristics, fees, and expenses structure between conventional and Islamic mutual fund. We also describe how the fees, expenses, and return can be explained by fund characteristics accordingly. A dataset comprises 252 open-end mutual funds in Malaysian industry offered within the period 2008 to 2015 is employed to present empirical evidence. Our results describe a significant difference in fees and expenses structure led by Islamic funds. High diversification explains Islamic funds while strong positive growth is associated with the traditional funds, supporting the relation between fees and expenses and fund performance. The declining trend of fees corroborates the idea of a favourable economies of scale contradictory to the rising expenses structure. Nevertheless, Islamic funds present an excessive fees and expenses in offering high and low quality portfolio management.

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Section: Does the Price Matter In Paying-off Good Return?supporting

confidence: 89%

Section: Literature Review and Hypotheses Statementmentioning

confidence: 99%

The Fund Characteristics, Fees, and Expenses Structure Between Conventional and Islamic Mutual Fund

Fikri¹,

Yahya²

2019

AAMJAF

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“…Mutual funds in broker-sold channels charge higher total fees because they need to compensate brokers for servicing investors, and earn lower before-fee returns, because they invest less in portfolio management. Whether our alternative better reflects the nature of competition between mutual fund families than the model of Gil-Bazo and Ruiz-Verdu (2008) remains an open question. However, it is worth highlighting the different welfare implications of the two models.…”

Section: Discussionmentioning

confidence: 99%

“…Because investors in this model are willing to tradeoff broker services and after-fee returns, it is welfare reducing to move investors with a revealed preference for interacting with brokers to lower-fee funds in the direct channel that lack these services. Whether our model better captures the nature of mutual fund competition than the model in Gil-Bazo and Ruiz-Verdu (2008) is an important open question that researchers will not be able to answer until we can overcome the inherent unobservability of broker services, or until there are significant changes in how investors compensate brokers. 7…”

mentioning

confidence: 99%

Broker Incentives and Mutual Fund Market Segmentation

Guercio

Reuter

Tkac

2010

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Madison for helpful comments and discussions. Del Guercio would like to acknowledge support from the Securities Analysis Center at the University of Oregon. We thank Steven Green for excellent research assistance and Deb Wetherbee at Financial Research Corporation for generously providing data on distribution channels. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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“…On the other hand, active fund managers are expected to select shares for their portfolios using skill, technology and access to data that investors do not have (Gil-Bazo & Ruiz-Verdú, 2008). Investors choose to invest their money in actively managed funds in the hope that the fund managers" ability will cause these funds to produce superior returns.…”

Section: Active Investingmentioning

confidence: 99%