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Fee structure, return chasing and mutual fund choice: an experiment

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Abstract

We present an experiment that investigates the effect of the fee structure and past returns on mutual fund choice. We find that subjects pay too little attention to the (periodic and small) operation expenses fee, but that the more salient front-end load is used as a commitment device and leads to lock-in into one of the funds. In addition we find that, even when subjects know that future returns are independent of past returns, these past returns are an important determinant of subjects� investment choices.

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  • Mikhail Anufriev & Te Bao & Angela Sutan & Jan Tuinstra, 2015. "Fee structure, return chasing and mutual fund choice: an experiment," Working Paper Series 30, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ecowps:30
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    Cited by:

    1. Anufriev, Mikhail & Bao, Te & Tuinstra, Jan, 2016. "Microfoundations for switching behavior in heterogeneous agent models: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 129(C), pages 74-99.

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    More about this item

    Keywords

    Mutual fund choice; fee structure; experimental economics; return chasing;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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