The Interdependence between Mutual Fund Managers and Investors in Setting Fees

Susan Christoffersen ()

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: In the mutual fund industry, there is a unique endogeneity between managers and investors. If a manager wants to lower fees in the hopes of attracting investors, the investors will not react unless they believe the manager will maintain low fees for a period of time. A binding contract is one way for managers to signal their commitment to low fees. However, in practice, many mutual funds waive fees with no contractual agreement that they will continue to waive fees. We show in a theoretical framework that an equilibrium with waivers can arise without contracts as long as investors' are relatively inert and discount factors are high enough for manager's to care about future fees. Investors are not fooled by waivers and are fully informed of the manager's actions and ability. If past returns have information about future returns, waivers indirectly act as a performance-based salary.

Date: 2000-11
New Economics Papers: this item is included in nep-fin
References: Add references at CitEc
Citations:

Downloads: (external link)
http://fic.wharton.upenn.edu/fic/papers/00/0043.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://fic.wharton.upenn.edu/fic/papers/00/0043.pdf [301 Moved Permanently]--> https://wifpr.wharton.upenn.edu/fic/papers/00/0043.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wop:pennin:00-43

Access Statistics for this paper

More papers in Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().