FIN-01-050

Incentive Fees and Mutual Funds

Forthcoming in the Journal of Finance

October 2001

Edwin J. Elton, Martin J. Gruber and Christopher R. Blake

ABSTRACT

The purpose of this article is to examine the impact of incentive fees on mutual fund performance. The paper proceeds as follows. In the first section we examine the characteristics and the use of incentive fees in the mutual fund industry. In the second section we explore the theory of the effect of incentive fees on manager behavior. In the third section we discuss our data. In the fourth section we examine empirical results concerning fees earned, risk-adjusted performance, the effect of incentive fees on risk, and new cash flows into funds using incentive fees.


Edwin J. Elton
Institution: Stern School of Business, New York University, 44th West 4th Street, New York, NY 10012
Telephone: (212) 998-0361
Fax: (212) 995-4233
Email: eelton@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~eelton

Martin J. Gruber
Institution: Stern School of Business, New York University, 44th West 4th Street, New York, NY 10012
Telephone: (212) 998-0333
Fax: (212) 995-4233
Email: mgruber@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~mgruber

Christopher R. Blake
Institution: Associate Professor of Finance, Fordham University
Email: cblake@fordham.edu
Homepage: http://www.bnet.fordham.edu/public/finance/cblake

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