The Persistence of Fee Dispersion among Mutual Funds*

The emerging landscape of retail e-commerce

Michael Cooper, Michael Halling and Wenhao Yang

Review of Finance, 2021, vol. 25, issue 2, 365-402

Abstract: Previous work shows large differences in fees for S&P 500 index funds and other funds and suggests that investors suffer wealth losses investing in high-fee funds when similar low-fee funds are available. In contrast, the neoclassical model of mutual funds (Berk and van Binsbergen, 2015, J. Financ. Econ., 118, 1–20) argues that percentage fees are irrelevant, as fund size will adjust in equilibrium such that net alphas are equal to zero. We show that fees matter from an investor perspective. We document (i) a strong negative association between net-of-fee fund performance and fees in a sample of all US and international equity funds, (ii) economically large, robust, persistent, and pervasive fee dispersion in the mutual fund industry, and (iii) important economic effects for investors. During the sample period, the mutual fund industry has generated a total value lost (i.e., a negative net value added) of 125 billion USD, coming predominantly from high-fee funds.

Keywords: Mutual funds; Fund fees; Fund expenses; Price dispersion; Price persistence (search for similar items in EconPapers)
JEL-codes: G10 G11 G23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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