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Scale and skills in European active management: Impact of a new regulatory context

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  • Khim, Veasna
  • Razafitombo, Hery

Abstract

This study examines the impact of a new regulatory context on the dynamics and nature of returns to scale in European active management. Using a sample of 1325 actively managed European equity funds and following Pastor, Stambaugh, and Taylor’s model from 2015, we find strong evidence of industry-level decreasing returns to scale. We also find that the new regulatory context creates structural breaks in the optimal scale that significantly change the size-performance relationship. We find strong support that emerging and small-cap funds allow increasing returns to scale. We find evidence that fund families play a moderating role in decreasing returns to scale. Further, the results show a significant upward trend in fund skills evolution.

Suggested Citation

  • Khim, Veasna & Razafitombo, Hery, 2023. "Scale and skills in European active management: Impact of a new regulatory context," Journal of Banking & Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001553
    DOI: 10.1016/j.jbankfin.2023.106963
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    More about this item

    Keywords

    Fund scale; European mutual funds; Fund skills; Performance evaluation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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