Effects of Sales Expenses and Management Expenses on Mutual Fund Performance and Flows1. (February 2015)

• Record Type: Journal Article
• Authors: Ban, Juil
• Is Part Of: Asia-Pacific journal of financial studies. Volume 44:Number 1(2015:Feb.)
• Page Start: 129
• Page End: 173
• Publication Date: 2015-02
• Subjects: Sales expense -- Management expense -- Fund performance -- Fund flow -- Investor learning; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12082
• Languages: English
• ISSNs: 2041-9945

Abstract

Abstract: By distinguishing the types of expenses in mutual funds, we examine the effects of sales expenses and management expenses on mutual fund performance and flows using Korean data. We find that a 1 basis point increase of management expenses is associated with a 2.3 basis point increase of risk‐adjusted performance in terms of annual gross returns, whereas higher sales expenses are not related to better performance. This indicates that management skills cover and exceed management expenses, while sales expenses are overpriced. In addition, the results show that a 1 basis point increase of sales expenses is related to a 5.2 basis point decrease of annual fund flows, but such a negative relation does not exist between management expenses and flows. These findings indicate that fund investors eventually learn to avoid excess sales expenses.