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Mutual Fund Mortality, 12b-1 Fees, And The Net Expense Ratio

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  • William P. Dukes
  • Philip C. English
  • Sean M. Davis
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    Abstract

    The Securities and Exchange Commission is currently reviewing Rule 12b-1, which governs how fund advisors may pay for the distribution of fund shares. We provide evidence that even after adjusting for economies of scale, funds with 12b-1 fees have higher expense ratios net of the 12b-1 fees than do funds without such fees. This finding suggests that 12b-1 fees are more than just a deadweight cost. We also demonstrate that 12b-1 fees are highest for funds that ultimately fail, that the proportion of funds with 12b-1 fees is increasing over time, and that the level of those fees is also increasing over time. 2006 The Southern Finance Association and the Southwestern Finance Association.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 29 (2006)
    Issue (Month): 2 ()
    Pages: 235-252

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    Handle: RePEc:bla:jfnres:v:29:y:2006:i:2:p:235-252

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    Web page: http://www.southwesternfinance.org/
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    Cited by:
    1. Iannotta, Giuliano & Navone, Marco, 2012. "The cross-section of mutual fund fee dispersion," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 846-856.
    2. Han, Jae-Joon & Kang, Kyeong-Hoon & Won, Seungyeon, 2013. "Fund expenses and vertical structures of the fund industry," Economic Modelling, Elsevier, vol. 35(C), pages 856-864.

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