Paying for beta: Leverage demand and asset management fees

Steffen Hitzemann, Stanislav Sokolinski and Mingzhu Tai

Journal of Financial Economics, 2022, vol. 145, issue 1, 105-128

Abstract: We examine how investor demand for leverage shapes asset management fees. We show that in the sample of U.S. equity mutual funds: (1) fees increase in fund market beta precisely for beta larger than one; (2) this relation becomes stronger and high-beta funds experience larger inflows when leverage constraints tighten; and (3) low net alphas are especially common among high-beta funds. These results are consistent with a model in which asset managers compete for leverage-constrained investors with heterogeneous risk aversion. The asymmetric relation between betas and fees also extends to the HML and SMB factors.

Keywords: Leverage; Financial intermediation; Mutual funds (search for similar items in EconPapers)
JEL-codes: G11 G23 L11 L13 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:1:p:105-128

DOI: 10.1016/j.jfineco.2022.04.002

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