Contagion and the Behavior of International Equity Funds

Abstract Previous work shows large differences in fees for S&P 500 index funds and other funds and suggests that investors suffer wealth losses investing in high-fee funds when similar low-fee funds are available. In contrast, the neoclassical model of mutual funds (Berk and van Binsbergen, 2015, J. Financ. Econ., 118, 1–20) argues that percentage fees are irrelevant, as fund size will adjust in equilibrium such that net alphas are equal to zero. We show that fees matter from an investor perspective. We document (i) a strong negative association between net-of-fee fund performance and fees in a sample of all US and international equity funds, (ii) economically large, robust, persistent, and pervasive fee dispersion in the mutual fund industry, and (iii) important economic effects for investors. During the sample period, the mutual fund industry has generated a total value lost (i.e., a negative net value added) of 125 billion USD, coming predominantly from high-fee funds.

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Explaining the expense ratio of international equity funds

American Journal of Business ◽

10.1108/ajb-07-2016-0021 ◽

2017 ◽

Vol 32 (2) ◽

pp. 82-92

Author(s):

Soo-Wah Low

Keyword(s):

Negative Impact ◽

Cross Sectional ◽

Content Type ◽

Expense Ratio ◽

Equity Funds ◽

Hidden Cost ◽

International Equity ◽

International Fund ◽

Fund Size ◽

Fund Expense

Purpose The purpose of this paper is to examine the determinants of fund expense ratio for Malaysia-based international equity funds. An understanding of what these factors are and how they affect a fund’s expense ratio is important given that international funds can be expensive to operate and that fund expenses have negative impact on investors’ returns. Design/methodology/approach This study employs a standard cross-sectional regression model in examining the factors that influence fund expense ratio of international equity funds. Findings The findings show that sales charge is positively related to fund expense ratio although it is not included in the expense ratio computation. This suggests that investor could possibly incur additional “hidden cost” since sales charge represents an upfront cost that an investor has already paid at the time of the fund sale. Additionally, funds with aggressive investment objective and frequent portfolio turnover show higher expense ratios than funds with conservative investment objective and less trading activities. There is no evidence that fund size, fund age, and the number of funds in a fund family are significantly related to the fund expense ratio. While the lack of statistical finding for fund size in this study seems inconsistent with the results of the US market in general, the finding is supportive of the Thai equity fund market and thus implying that finding could be country specific. Research limitations/implications There is limited availability of international equity funds in Malaysia. Practical implications The findings provide useful insights for investors to make informed international fund selection decisions. Expense-conscious investors should pay particular attention to fund’s sales charge, turnover ratio, and its investment objective when selecting funds for investment. Originality/value This paper provides first evidence on the determinants of fund expense ratio of Malaysia-based international equity funds.

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Determinants of flows into retail international equity funds

Journal of International Business Studies ◽

10.1057/palgrave.jibs.8400408 ◽

2008 ◽

Vol 39 (7) ◽

pp. 1169-1177 ◽

Cited By ~ 7

Author(s):

Xinge Zhao

Keyword(s):

Equity Funds ◽

International Equity

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Flights to Safety

Review of Financial Studies ◽

10.1093/rfs/hhz055 ◽

2019 ◽

Vol 33 (2) ◽

pp. 689-746 ◽

Cited By ~ 17

Author(s):

Lieven Baele ◽

Geert Bekaert ◽

Koen Inghelbrecht ◽

Min Wei

Keyword(s):

Hedge Funds ◽

Model Averaging ◽

Corporate Bond ◽

International Equity Markets ◽

Corporate Bond Market ◽

Oxford University ◽

Flight To Quality ◽

Money Market Funds ◽

Equity Funds ◽

International Equity

Abstract We identify flight-to-safety (FTS) days for twenty-three countries using only stock and bond returns and a model averaging approach. FTS days comprise less than 2% of the sample and are associated with a 2.7% average bond-equity return differential and significant flows out of equity funds and into government bond and money market funds. FTS represents flights to both quality and liquidity in international equity markets, but mainly a flight to quality in the U.S. corporate bond market. Emerging markets, endowment funds, and hedge funds perform poorly during FTS, whereas hedge funds appear to vary their systematic exposures prior to an FTS. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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