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The Relationship between A ustralian Mutual Fund Fees and Risk‐Adjusted Performance in Differing Economic Conditions
Author(s) -
Haque Tariq,
Ahmed Abdullahi D.
Publication year - 2015
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12036
Subject(s) - recession , mutual fund , fund of funds , economics , closed end fund , expense ratio , monetary economics , econometrics , business , finance , macroeconomics , market liquidity
We find that A ustralian mutual fund investors should avoid high fee funds as these funds generate relatively low after‐fee risk‐adjusted returns both unconditionally and in weak economic conditions. This result is different from some of the previous findings which showed that US mutual funds with relatively high expense ratios may generate relatively higher risk‐adjusted returns during recessions relative to non‐recessions, although their unconditional alphas may be negative. We find some support for the G lode hypothesis in surviving A ustralian wholesale funds. High‐fee surviving A ustralian wholesale funds perform relatively strongly in both weak economic conditions and unconditionally. High‐fee funds in other types of A ustralian mutual funds generally do not perform strongly either in weak economic conditions or unconditionally. Amongst low‐fee funds, we commonly find that those that perform well unconditionally and well in weak economic conditions do charge more than those that perform well unconditionally and poorly in weak economic conditions. Amongst low‐fee funds, it is often true that those that perform poorly unconditionally but well in weak economic conditions can charge more than those that perform poorly unconditionally and poorly in weak economic conditions.