Do Fees Matter? Investor's Sensitivity to Active Management Fees

56 Pages Posted: 3 Jun 2021 Last revised: 25 Aug 2023

See all articles by Trond Døskeland

Trond Døskeland

NHH Norwegian School of Economics; affiliation not provided to SSRN

André Wattø Sjuve

Norwegian School of Economics (NHH)

Andreas Ørpetveit

Norwegian School of Economics (NHH)

Date Written: August 10, 2022

Abstract

The active mutual fund equilibrium model developed by Berk and Green (2004) predicts that fees should not matter for investors’ mutual fund choices. We examine how fees influence demand for active mutual funds by analyzing time variation in funds’ fees. Since investors should not pay "alpha fees" for "beta performance", we measure fees as an excess fee above the passive alternative and as the unit price of active management where active share represents the activity level. Using international data, we identify a negative time-series relation between fee measures and fund flows. The results also hold after controlling for Morningstar ratings.

Keywords: Mutual funds, active portfolio management, fund flows

JEL Classification: G11, G23, D14

Suggested Citation

Døskeland, Trond and Sjuve, André and Ørpetveit, Andreas, Do Fees Matter? Investor's Sensitivity to Active Management Fees (August 10, 2022). Available at SSRN: https://ssrn.com/abstract=3857628 or http://dx.doi.org/10.2139/ssrn.3857628

Trond Døskeland

NHH Norwegian School of Economics ( email )

Helleveien 30
Bergen, NO-5045
Norway

affiliation not provided to SSRN

André Sjuve (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Andreas Ørpetveit

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

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