Search Costs and Mutual Fund Fee Dispersion

Posted: 10 Dec 2008 Last revised: 6 Apr 2015

See all articles by Marco A. Navone

Marco A. Navone

Finance Discipline Group - UTS Business School; Bocconi University - CAREFIN - Centre for Applied Research in Finance; Financial Research Network (FIRN)

Giuliano Iannotta

Università Cattolica

Date Written: November 1, 2008

Abstract

In this paper, we analyze the effect of search costs on mutual fund fee dispersion. Using a heteroscedastic regression model, we can quantify the portion of the expense ratio (net of 12b-1 fees) not justified by the quality of the service provided, the cost structure of the investment company or the specificities of the clientele served by the fund. We show that the dispersion of this residual fee is lower for highly visible funds and for funds that heavily invest in marketing. We also document that the effect of our search cost proxy variables is economically meaningful and symmetrical, yielding to a reduction of both the probabilities to charge uncommonly high or uncommonly low fees. We argue that this result is relevant for the evaluation of the competitiveness of the US mutual fund market because it quantifies the extent to which market participants are able to charge non-marginal prices for homogeneous products.

This paper is currently reserved to Carefin sponsors and will be made public on SSRN after a short embargo. Please visit the CAREFIN website to learn more on how to get the paper.

Keywords: mutual funds, expense ratios, price dispersion

JEL Classification: G14, G23

Suggested Citation

Navone, Marco A. and Iannotta, Giuliano, Search Costs and Mutual Fund Fee Dispersion (November 1, 2008). CAREFIN Research Paper No. 13/08, Available at SSRN: https://ssrn.com/abstract=1314193

Marco A. Navone

Finance Discipline Group - UTS Business School ( email )

Haymarket
Sydney, NSW 2007
Australia

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti, 25
Milan, 20136
Italy

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Giuliano Iannotta (Contact Author)

Università Cattolica ( email )

20123 Milano
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
724
PlumX Metrics