Incentive Fees and Mutual Funds
This paper examines the effect of incentive fees on the behavior of mutual fund managers. Funds with incentive fees exhibit positive stock selection ability, but a beta less than one results in funds not earning positive fees. From an investor's perspective, positive alphas plus lower expense ratios make incentive-fee funds attractive. However, incentive-fee funds take on more risk than non-incentive-fee funds, and they increase risk after a period of poor performance. Incentive fees are useful marketing tools, since more new cash flows go into incentive-fee funds than into non-incentive-fee funds, ceteris paribus. Copyright (c) 2003 by the American Finance Association.
Year of publication: |
2003
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Authors: | Elton, Edwin J. ; Gruber, Martin J. ; Blake, Christopher R. |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 58.2003, 2, p. 779-804
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Publisher: |
American Finance Association - AFA |
Saved in:
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