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The Relationship between Mutual Fund Fees and Expenses and Their Effects on Performance

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  • Dellva, Wilfred L
  • Olson, Gerard T
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    Abstract

    Fees charged by mutual funds include front-end load charges, deferred sales charges that decrease over time, redemption fees that are imposed whenever shares are sold, and 12b-1 fees. Fees may be justified if they allow the fund to lower other costs or improve performance. In this paper, we find that, on average, 12b-1 fees, deferred sales charges, and redemption fees increase expenses whereas funds with front-end loads generally have lower expenses. We also find that funds with 12b-1 fees and redemption fees, on average, earn higher risk adjusted returns but funds with front-end load charges earn lower risk adjusted returns. Copyright 1998 by MIT Press.

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    Bibliographic Info

    Article provided by Eastern Finance Association in its journal The Financial Review.

    Volume (Year): 33 (1998)
    Issue (Month): 1 (February)
    Pages: 85-103

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    Handle: RePEc:bla:finrev:v:33:y:1998:i:1:p:85-103

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    Web page: http://www.easternfinance.org/
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    Cited by:
    1. Eakins, Stanley G. & Stansell, Stanley R., 2003. "Can value-based stock selection criteria yield superior risk-adjusted returns: an application of neural networks," International Review of Financial Analysis, Elsevier, vol. 12(1), pages 83-97.
    2. Babalos, Vassilios & Kostakis, Alexandros & Philippas, Nikolaos, 2009. "Managing mutual funds or managing expense ratios? Evidence from the Greek fund industry," Journal of Multinational Financial Management, Elsevier, vol. 19(4), pages 256-272, October.
    3. Prather, Laurie & Bertin, William J. & Henker, Thomas, 2004. "Mutual fund characteristics, managerial attributes, and fund performance," Review of Financial Economics, Elsevier, vol. 13(4), pages 305-326.
    4. Carmen-Pilar Mart¨ª-Ballester, 2012. "A Comparative Analysis of the Performance of Collective Investment Institutions," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 43-52, May.
    5. Schadler, Frederick P. & Eakins, Stanley G., 2001. "A stock selection model using Morningstar's style box," Financial Services Review, Elsevier, vol. 10(1-4), pages 129-144.
    6. Isabel Toledo & Roc�o Marco, 2010. "Costs associated with mutual funds in Spain," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(2), pages 165-179.
    7. Gil Bazo, Javier & Martínez Sedano, Miguel Angel, 2003. "The Black Box of Mutual Fund Fees," DFAEII Working Papers 2004-01, University of the Basque Country - Department of Foundations of Economic Analysis II.
    8. Tang, Ke & Wang, Wenjun & Xu, Rong, 2012. "Size and performance of Chinese mutual funds: The role of economy of scale and liquidity," Pacific-Basin Finance Journal, Elsevier, vol. 20(2), pages 228-246.

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