Pricing of Mutual Fund Services in Retirement Plans: Evidence from Open- End Equity Funds
Performance Counts, But So Does Market Power
By Jacob De Rooy
Jacob De Rooy is on the faculty of the School of Business Administration, Capital College of The Pennsylvania State University at Harrisburg where he is chair of the Finance/Economics Program in the School of Business Administration. Formerly, he was director of the Penn State Harrisburg MBA Program. He is a consulting economist for the Pennsylvania Association of Realtors® and frequently comments on economic affairs for local television and radio stations and print media. He received B.A., M.A., and Ph.D. degrees from Rutgers-The State University of New Jersey. He is a member of the American Economic Association, National Association for Business Economics, and the Financial Management Association.
Management fees of mutual funds are more costly to investors than is often realized. Moreover, research indicates that in many cases, the fees are not related to performance, contrary to what might be expected from an efficient market. This study uses sample data to illustrate the consequences of inefficiency to an individual investor. It then turns to an empirical examination of the determinants of the ratio of management fees to total assets (MER), investigating market concentration, fund performance, and non-performance characteristics as explanatory variables. All of these classes of variables contributed to the variation of MERs .
This paper won the 2006 NABE Contributed Paper Award, presented at NABE’s 48th Annual Meeting, September 11, 2006.
By Jacob De Rooy