Abstract
This paper investigates the correlation between fund costs and fund performance in Danish retail equity funds from 2008-2014. Based on a theoretical discussion of the expected correlation between fund cost items and fund performance, five hypotheses are proposed. A majority of these suggest an expected negative correlation between the cost item in question and the performance of the fund given the expected negative impact of distribution costs, and the risk of agency problems in high cost funds. The hypotheses are tested empirically by the use of OLS multivariate cross-sectional dummy variable regressions for three different investment horizons with the use of two different performance measures, Sharpe ratio and Jensen’s Alpha. The empirical evidence provides some degree of support for the hypothesis that fund costs in general are negatively correlated to fund performance in Danish retail equity funds. However, the findings are sensitive to the choice of performance measure and to the period of investigation, and are only statistically significant for the short and medium investment horizon when applying the Sharpe ratio as the performance measure.
Educations | MSc in Applied Economics and Finance, (Graduate Programme) Final Thesis |
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Language | English |
Publication date | 2015 |
Number of pages | 85 |