In the context of a theoretical model for the interaction between an active fund manager and a risk-averse investor, we show that mutual fund fees should exhibit a positive concave dependence on their idiosyncratic volatilities. The crucial ingredients are the infeasibility of short-selling the fund, and the fact that its idiosyncratic volatility generates uncertainty about its performance. Our empirical investigations provide strong support for this result. In fact, idiosyncratic volatility appears to be the most important determinant of mutual fund fees. Moreover, we demonstrate that when it is included as an explanatory variable in cross-sectional regressions, the widely reported negative dependence of fees on performance dissipates. Signi cantly, our resolution for this puzzle does not require assumptions of in-vestor unsophistication or fund manager opportunism. In fact, we provide positive evidence for a certain amount of investor sophistication, by demonstrating their apparent unwilling-ness to pay active fees for passive performance, as predicted by our model.
Keywords: Mutual fund fees; idiosyncratic risk; uncertainty; short-selling
JEL Codes: C72; D58; D83; G11; G12; G23
학회소식
[2013년 제 4차] The Impact of Idiosyncratic Risk on Mutual Fund Fee
작성자 : 관리자
조회수 : 1136
게시일 :
2013-12-16
