The Persistence of Fee Dispersion among Mutual Funds

54 Pages Posted: 18 Aug 2009 Last revised: 26 May 2020

See all articles by Michael J. Cooper

Michael J. Cooper

University of Utah - David Eccles School of Business

Michael Halling

Stockholm School of Economics & Swedish House of Finance

Wenhao Yang

Chinese University of Hong Kong, Shenzhen

Date Written: May 22, 2020

Abstract

Previous work shows large differences in fees for S&P 500 index funds and other funds, and suggests that investors suffer wealth losses investing in high-fee funds when similar low-fee funds are available. In contrast, the neoclassical model of mutual funds (Berk and van Binsbergen, 2015) argues that percentage fees are irrelevant, as fund size will adjust in equilibrium such that net alphas are equal to zero. We show that fees matter from an investor perspective. We document (a) a strong negative association between net-of-fee fund performance and fees in a sample of all US and international equity funds, (b) economically large, robust, persistent, and pervasive fee dispersion in the mutual fund industry, and (c) important economic effects for investors. During the sample period, the mutual fund industry has generated a total value lost (i.e., a negative net value added) of 125 billion USD, coming predominantly from high-fee funds.

Keywords: Mutual Funds, Fund Fees, Price Dispersion, Price Persistence

JEL Classification: G10, G11, G23

Suggested Citation

Cooper, Michael J. and Halling, Michael and Yang, Wenhao, The Persistence of Fee Dispersion among Mutual Funds (May 22, 2020). Swedish House of Finance Research Paper No. 14-11. Available at SSRN: https://ssrn.com/abstract=1456079 or http://dx.doi.org/10.2139/ssrn.1456079

Michael J. Cooper (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Michael Halling

Stockholm School of Economics & Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Wenhao Yang

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

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