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The Mismatch Between Mutual Fund Scale and Skill

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  • YANG SONG

Abstract

I demonstrate that skill and scale are mismatched among actively managed equity mutual funds. Many mutual fund investors confuse the effects of fund exposures to common systematic factors with managerial skill when allocating capital among funds. Active mutual funds with positive factor‐related past returns thus accumulate assets to the point that they significantly underperform. I also show that the negative aggregate benchmark‐adjusted performance of active equity mutual funds is driven mainly by these oversized funds.

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  • Yang Song, 2020. "The Mismatch Between Mutual Fund Scale and Skill," Journal of Finance, American Finance Association, vol. 75(5), pages 2555-2589, October.
  • Handle: RePEc:bla:jfinan:v:75:y:2020:i:5:p:2555-2589
    DOI: 10.1111/jofi.12950
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    Cited by:

    1. Jeffrey A. Busse & Tarun Chordia & Lei Jiang & Yuehua Tang, 2021. "Transaction Costs, Portfolio Characteristics, and Mutual Fund Performance," Management Science, INFORMS, vol. 67(2), pages 1227-1248, February.

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