Do Chinese Investors Get What They Don't Pay For? Expense Ratios, Loads, and the Returns to China's Open-End Mutual Funds

29 Pages Posted: 28 Oct 2016  

Yang Wang

Tulane University, A.B. Freeman School of Business, Finance & Economics, Students

Edward Tower

Duke University - Department of Economics; Chulalongkorn University-Economics Department

Date Written: October 27, 2016

Abstract

In this paper we analyze the performance of China's open-ended mutual funds, using the data of 467 open-ended mutual funds from 60 fund families from January 2010 through April 2015. A paradox emerges. High expense ratios are associated with better performance. Unsurprisingly, in light of studies of US funds, when we benchmark performance against stock indexes with the same style, we find that the performance of most mutual funds does not beat the collection of indexes that most closely track the fund. Also, unsurprisingly, we find fund families with high expense ratios serve investors less well than those with low expense ratios, and, unsurprisingly in light of research on the US mutual fund market, the return reduction is larger than can be accounted for by the difference in expense ratios. Surprisingly, for most mutual funds we find high and similar expense ratios. We rank the mutual fund companies from best to worst, and we name names to help investors pick relatively good fund companies. Investors would earn higher returns by investing in mutual funds with low expense ratios and lower sales loads.

Suggested Citation

Wang, Yang and Tower, Edward, Do Chinese Investors Get What They Don't Pay For? Expense Ratios, Loads, and the Returns to China's Open-End Mutual Funds (October 27, 2016). Economic Research Initiatives at Duke (ERID) Working Paper No. 231. Available at SSRN: https://ssrn.com/abstract=2860334

Yang Wang

Tulane University, A.B. Freeman School of Business, Finance & Economics, Students ( email )

7 McAlister Drive
New Orleans, LA
United States

Edward Tower (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1818 (Phone)
919-684-8974 (Fax)

Chulalongkorn University-Economics Department

Bangkok
Thailand

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