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Unbundling the Expense Ratio: Hidden Distribution Costs in European Mutual Fund Markets
Author(s) -
Navone Marco,
Nocera Giacomo
Publication year - 2016
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12078
Subject(s) - mutual fund , expense ratio , unbundling , distribution (mathematics) , business , closed end fund , management fee , economics , finance , monetary economics , open end fund , institutional investor , industrial organization , corporate governance , market liquidity , mathematical analysis , mathematics
Using data on more than 5,000 mutual funds domiciled in four European countries in 2006, we investigate whether distribution costs embedded into the expense ratio can be held responsible for the differences of expense ratios of mutual funds in different countries. We confirm the existence of relevant country effects in the pricing of mutual fund management services. Comparing load and no‐load funds and using survey data on fee retrocession to the distribution channel, we provide evidence that these effects are heavily influenced by the cost of the distribution embedded in the expense ratio.