The Relation between Price and Performance in the Mutual Fund Industry

Javier Gil‐bazo and Pablo Ruiz‐verdú
Authors registered in the RePEc Author Service: Javier Gil-Bazo

Journal of Finance, 2009, vol. 64, issue 5, 2153-2183

Abstract: Gruber (1996) drew attention to the puzzle that investors buy actively managed equity mutual funds, even though on average such funds underperform index funds. We uncover another puzzling fact about the market for equity mutual funds: Funds with worse before‐fee performance charge higher fees. This negative relation between fees and performance is robust and can be explained as the outcome of strategic fee‐setting by mutual funds in the presence of investors with different degrees of sensitivity to performance. We also find some evidence that better fund governance may bring fees more in line with performance.

Date: 2009
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https://doi.org/10.1111/j.1540-6261.2009.01497.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:64:y:2009:i:5:p:2153-2183

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