Abstract

http://ssrn.com/abstract=2390285
 


 



Scale and Skill in Active Management


Lubos Pastor


University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Robert F. Stambaugh


University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Lucian A. Taylor


University of Pennsylvania - The Wharton School

January 31, 2014

Becker Friedman Institute for Research in Economics Working Paper No. 2014-03

Abstract:     
We empirically analyze the nature of returns to scale in active mutual fund management. We find strong evidence of decreasing returns at the industry level: As the size of the active mutual fund industry increases, a fund’s ability to out-perform passive benchmarks declines. At the fund level, all methods considered indicate decreasing returns, but estimates that avoid econometric biases are insignificant. We also find that the active management industry has become more skilled over time. This upward trend in skill coincides with industry growth, which precludes the skill improvement from boosting fund performance. Finally, we find that performance deteriorates over a typical fund’s lifetime. This result can also be explained by industry-level decreasing returns to scale.

Number of Pages in PDF File: 51

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Date posted: February 5, 2014  

Suggested Citation

Pastor, Lubos and Stambaugh, Robert F. and Taylor, Lucian A., Scale and Skill in Active Management (January 31, 2014). Becker Friedman Institute for Research in Economics Working Paper No. 2014-03. Available at SSRN: http://ssrn.com/abstract=2390285 or http://dx.doi.org/10.2139/ssrn.2390285

Contact Information

Lubos Pastor (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4080 (Phone)
773-702-0458 (Fax)
HOME PAGE: http://www.ChicagoGSB.edu/fac/lubos.pastor/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert F. Stambaugh
University of Pennsylvania - The Wharton School ( email )
The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Lucian A. Taylor
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
HOME PAGE: http://finance.wharton.upenn.edu/~luket/
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