45: Fee Structure and Mutual Fund Choice: An Experiment
Author(s):
Mikhail Anufriev, Economics Discipline Group, UTS Business School, University of Technology, Sydney. Te Bao, Division of Economics, Nanyang Technological University, Singapore. Angela Sutan, Burgundy School of Business, University Bourgogne Franche-Comte CEREN. Jan Tuinstra, Amsterdam School of Economics, University of Amsterdam
Date of publication: June 2018
Working paper number: 45
Abstract: We present a laboratory experiment which is designed to investigate the e ect of the fee
structure on mutual fund choice. We nd 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.
