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The relation between fees and return predictability in the mutual fund industry

Author

Listed:
  • Vidal, Marta
  • Vidal-García, Javier
  • Lean, Hooi Hooi
  • Uddin, Gazi Salah

Abstract

We propose and test a methodological framework to examine the relation between mutual fund fees and return predictability. Gil-Bazo and Ruiz-Verdu (2009) drew attention to the puzzling fact that funds with worse before-fee performance charge higher fees. We make another contribution to the literature about the market for equity mutual funds: we find strong evidence of predictability for mutual fund fees. Funds with both positive and negative relations with fees show strong evidence of negative return predictability for their fees. Our findings are robust to alternative estimation methods and under the assumption of conditionally heteroskedastic stock returns. Our results also show that conditioning information (e.g. dividend yield, t-bill yield, default spread and term spread) are useful in selecting funds with superior performance and are valuable for asset allocation decisions.

Suggested Citation

  • Vidal, Marta & Vidal-García, Javier & Lean, Hooi Hooi & Uddin, Gazi Salah, 2015. "The relation between fees and return predictability in the mutual fund industry," Economic Modelling, Elsevier, vol. 47(C), pages 260-270.
  • Handle: RePEc:eee:ecmode:v:47:y:2015:i:c:p:260-270
    DOI: 10.1016/j.econmod.2015.02.036
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ecmode:v:69:y:2018:i:c:p:26-37 is not listed on IDEAS
    2. Vidal-García, Javier & Vidal, Marta & Boubaker, Sabri & Uddin, Gazi Salah, 2016. "The short-term persistence of international mutual fund performance," Economic Modelling, Elsevier, vol. 52(PB), pages 926-938.
    3. repec:eee:ecmode:v:70:y:2018:i:c:p:29-39 is not listed on IDEAS

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