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The Determinants of Management Expenses

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  • Michael K. Berkowitz
  • Yehuda Kotowitz

Abstract

This paper develops a model which explains the determinants of the management expenses charged by U.S. equity funds. The study shows that for high quality managers, an increase in quality is associated with higher fees. In contrast, as the quality of the lower quality managers deteriorates, their fees increase. A non-linear negative relationship is found between the size of a fund and its management expenses. Economies of scope are also shown to exist between the number of funds within a mutual fund complex and the management expenses charged investors. Finally, while 12b-1 fees have been thought of as a substitute for load charges, this paper suggests that they are complements.

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File URL: http://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-BERK-97-02.pdf
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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number berk-97-02.

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Length: 36 pages
Date of creation: 17 Jun 1997
Date of revision:
Handle: RePEc:tor:tecipa:berk-97-02

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  1. Ferris, Stephen P & Chance, Don M, 1987. " The Effect of 12b-1 Plans on Mutual Fund Expense Ratios: A Note," Journal of Finance, American Finance Association, American Finance Association, vol. 42(4), pages 1077-82, September.
  2. Judith Chevalier & Glenn Ellison, 1999. "Are Some Mutual Fund Managers Better Than Others? Cross-Sectional Patterns in Behavior and Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 54(3), pages 875-899, 06.
  3. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 57-82, March.
  4. M. K. Berkowitz & Y. Kotowitz, 1993. "Incentives and Efficiency in the Market for Management Services: A Study of Canadian Mutual Funds," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 26(4), pages 850-66, November.
  5. Michael K. Berkowitz & Yehuda Kotowitz, 1997. "Management Compensation and the Performance of Mutual Funds," Working Papers, University of Toronto, Department of Economics berk-97-01, University of Toronto, Department of Economics.
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