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Another explanation of the mutual fund fee puzzle

journal contribution
posted on 2016-03-01, 00:00 authored by Meixia Hu, Chi-Chur Chao, J H Lim
This paper demonstrates that investor sentiment explains the recent puzzle of the negative relation between fees and before-fee performance of equity mutual funds. Using a composite proxy for investor sentiment, the puzzle can be explained stronger by investor sentiment, compared to the strategic fee-setting explanation discussed in the literature. More-sentiment driven investors would like to select more skilled fund managers, leading to a better future performance in short run. Additionally, when sentiment is high (low), it results in lower (higher) fees. Our results highlight the use of investor sentiment approach in determining mutual fund fees and performance.

History

Journal

International review of economics and finance

Volume

42

Pagination

134 - 152

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

1059-0560

Language

eng

Publication classification

C Journal article; C1 Refereed article in a scholarly journal

Copyright notice

2015, Elsevier

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