Measuring (In)Attention to Mutual Fund Fees: Evidence from Experiments

38 Pages Posted: 23 Aug 2018  

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business

Wenhao Yang

University of South Carolina - Darla Moore School of Business

Date Written: May 3, 2018

Abstract

We estimate investors’ attention level to mutual fund fees based on a parsimonious asset allocation model with limited attention in an experimental setting. We find that, on average, investors allocate 62.5% of their full attention to mutual fund fees. We also find that cognitive ability is an important factor in determining investors’ attention to the fees. The estimated attention level implies investors in the U.S. mutual funds market pay $16 billion more fees per year than the level they recognize. We evaluate policy options to increase attention to fees and find that the policy effectiveness may depend on one’s cognitive ability.

Keywords: mutual fund fees, limited attention, price complexity, cognitive ability

JEL Classification: G41, G11, G23

Suggested Citation

Kim, Hugh Hoikwang and Yang, Wenhao, Measuring (In)Attention to Mutual Fund Fees: Evidence from Experiments (May 3, 2018). Available at SSRN: https://ssrn.com/abstract=3230081 or http://dx.doi.org/10.2139/ssrn.3230081

Hugh Hoikwang Kim (Contact Author)

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

Wenhao Yang

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

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