Fee structure and mutual fund choice : an experiment

We present a laboratory experiment designed to investigate the effect of the fee structure on mutual fund choice. We find that subjects tend to ignore periodic and small operating expenses fees and base their decisions on gross, instead of net, returns. A fee in the form of a, much larger, front-end...

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Bibliographic Details
Main Authors: Anufrie, Mikhail, Bao, Te, Sutan, Angela, Tuinstra, Jan
Other Authors: School of Social Sciences
Format: Article
Language:English
Published: 2021
Subjects:
Online Access:https://hdl.handle.net/10356/151515
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Institution: Nanyang Technological University
Language: English
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Summary:We present a laboratory experiment designed to investigate the effect of the fee structure on mutual fund choice. We find that subjects tend to ignore periodic and small operating expenses fees and base their decisions on gross, instead of net, returns. A fee in the form of a, much larger, front-end load leads to lock-in into one of the funds. It is used by some subjects as a commitment device, but exacerbates the decision errors of other subjects. Although past returns do not convey information about future returns, return chasing helps explain subjects’ behavior.