Fee Structure, Return Chasing and Mutual Fund Choice: An Experiment

33 Pages Posted: 22 Mar 2012 Last revised: 25 Apr 2015

See all articles by Mikhail Anufriev

Mikhail Anufriev

University of Technology Sydney (UTS)

Te Bao

Nanyang Technological University (NTU) - Division of Economics; University of Amsterdam - CeNDEF

Angela Sutan

Burgundy School of Business - CEREN, ESC Dijon

Jan Tuinstra

University of Amsterdam - Department of Quantitative Economics (KE); Tinbergen Institute

Date Written: April 25, 2015

Abstract

We present an experiment that investigates the effect of the fee structure and past returns on mutual fund choice. We find that subjects pay too little attention to the (periodic and small) operation expenses fee, but the more salient front-end load is used as a commitment device and leads to lock-in into one of the funds. In addition, even when subjects know that future returns are independent of past returns, these past returns are an important determinant of subjects' investment choices.

Keywords: Reinforcement learning, front end load fee, operation expense, mutual fund selection

JEL Classification: C91, G02, G11

Suggested Citation

Anufriev, Mikhail and Bao, Te and Sutan, Angela and Tuinstra, Jan, Fee Structure, Return Chasing and Mutual Fund Choice: An Experiment (April 25, 2015). Available at SSRN: https://ssrn.com/abstract=2027157 or http://dx.doi.org/10.2139/ssrn.2027157

Mikhail Anufriev

University of Technology Sydney (UTS) ( email )

P. O. Box 123
Broadway, NSW 2007
Australia

Te Bao (Contact Author)

Nanyang Technological University (NTU) - Division of Economics ( email )

HSS 04-53, 14 Nanyang Drive
Singapore, 639798
Singapore

University of Amsterdam - CeNDEF ( email )

Roetersstraat 11
Amsterdam, NL-1018WB
Netherlands

Angela Sutan

Burgundy School of Business - CEREN, ESC Dijon ( email )

29 rue Sambin
Dijon, 21006
France

Jan Tuinstra

University of Amsterdam - Department of Quantitative Economics (KE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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