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Risk-adjusted impact of administrative costs on the distribution of terminal wealth for long-term investment

Guillén, M., Jarner, S. F., Nielsen, J. P. and Pérez-Marín, A. M. (2014). Risk-adjusted impact of administrative costs on the distribution of terminal wealth for long-term investment. Scientific World Journal, 2014, 521074 - ?. doi: 10.1155/2014/521074

Abstract

The impact of administrative costs on the distribution of terminal wealth is approximated using a simple formula applicable to many investment situations. We show that the reduction in median returns attributable to administrative fees is usually at least twice the amount of the administrative costs charged for most investment funds, when considering a risk-adjustment correction over a reasonably long-term time horizon. The example we present covers a number of standard cases and can be applied to passive investments, mutual funds, and hedge funds. Our results show investors the potential losses they face in performance due to administrative costs.

Publication Type: Article
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Actuarial Science & Insurance
Related URLs:
URI: http://openaccess.city.ac.uk/id/eprint/4636
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