INFLUENCES AND TRENDS IN MUTUAL FUND EXPENSE RATIOS

A common question for the mutual fund industry, which has experienced a fivefold increase in assets over the last few years, is whether it shows declining production costs. Prior studies on fund expenses give conflicting results because several factors, from asset size to management style to share class, affect costs. Controlling for these and other factors shows the average stock fund expense ratio declined 1 basis point per year and bond fund ratios decreased 1 to 3 basis points per year, depending on the investment objective, from 1994 to 1998. Funds participating in no‐transaction‐fee supermarkets are more expensive than equivalent nonparticipants. JEL classification: G20, G28