Abstract
In this study, we empirically explore the implications of a non-standard mutual fund performance fee structure. This contract deviates from the designs recommended in previous literature, in that, it lacks a benchmark portfolio and fails to apply a high-performance fee component, making a timid attempt to align investors’ and managers’ interests. Using a panel data model, we compare the risk-adjusted performance measures for funds with and without performance fees, within the same investment policies. Some investment categories, that charge a performance fee component, earn superior risk-adjusted returns; additionally, they attract investors. The empirical implications of this study back up the prevailing theory.
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