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Size does not matter: Diseconomies of scale in the mutual fund industry revisited

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  • Phillips, Blake
  • Pukthuanthong, Kuntara
  • Rau, P. Raghavendra

Abstract

The academic literature has found mixed evidence that fund size is negatively related to performance. One reason for the lack of consensus may be that the fund size and performance relation is endogenous. In this paper, we identify a set of instrumental variables that influence fund size but are unrelated to expected fund performance. Using this specification, we show that fund size does not appear to affect fund performance.

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  • Phillips, Blake & Pukthuanthong, Kuntara & Rau, P. Raghavendra, 2018. "Size does not matter: Diseconomies of scale in the mutual fund industry revisited," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 357-365.
    • Handle: RePEc:eee:jbfina:v:88:y:2018:i:c:p:357-365
    DOI: 10.1016/j.jbankfin.2017.12.005
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    6. Timothy B. Riley, 2021. "Portfolios of actively managed mutual funds," The Financial Review, Eastern Finance Association, vol. 56(2), pages 205-230, May.
    7. Giuseppe Galloppo, 2021. "Size," Springer Books, in: Asset Allocation Strategies for Mutual Funds, chapter 0, pages 151-190, Springer.
    8. Jiang, George J. & Zaynutdinova, Gulnara R. & Zhang, Huacheng, 2021. "Stock-selection timing," Journal of Banking & Finance, Elsevier, vol. 125(C).
    9. Rakowski, David & Yamani, Ehab, 2021. "Endogeneity in the mutual fund flow–performance relationship: An instrumental variables solution," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 247-271.
    10. Samar Farid & Hayam Wahba, 2022. "The effect of fund size on mutual funds performance in Egypt," Future Business Journal, Springer, vol. 8(1), pages 1-11, December.
    11. Sofia Fonseca & Maria João Guedes & Vítor Conceição Gonçalves, 2022. "Profitability and size of newly established firms," International Entrepreneurship and Management Journal, Springer, vol. 18(2), pages 957-974, June.
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