Abstract

http://ssrn.com/abstract=951367
 
 

References (41)



 
 

Citations (28)



 


 



Scale Effects in Mutual Fund Performance: The Role of Trading Costs


Roger M. Edelen


University of California, Davis - Graduate School of Management

Richard B. Evans


University of Virginia - Darden School of Business

Gregory B. Kadlec


Virginia Polytechnic Institute & State University - Pamplin College of Business

March 17, 2007


Abstract:     
Berk and Green (2004) argue that investment inflow at high-performing mutual funds eliminates return persistence because fund managers face diminishing returns to scale. Our study examines the role of trading costs as a source of diseconomies of scale for mutual funds. We estimate annual trading costs for a large sample of equity funds and find that they are comparable in magnitude to the expense ratio; that they have higher cross-sectional variation that is related to fund trade size; and that they have an increasingly detrimental impact on performance as the fund's relative trade size increases. Moreover, relative trade size subsumes fund size in regressions of fund returns, which suggests that trading costs are the primary source of diseconomies of scale for funds.

Number of Pages in PDF File: 41

Keywords: Mutual Fund, Trading Costs, Size, Flow, Soft Dollars

JEL Classification: G11, G20, G24

working papers series


Download This Paper

Date posted: December 13, 2006 ; Last revised: July 8, 2009

Suggested Citation

Edelen, Roger M. and Evans, Richard B. and Kadlec, Gregory B., Scale Effects in Mutual Fund Performance: The Role of Trading Costs (March 17, 2007). Available at SSRN: http://ssrn.com/abstract=951367 or http://dx.doi.org/10.2139/ssrn.951367

Contact Information

Roger M. Edelen
University of California, Davis - Graduate School of Management ( email )
One Shields Avenue
Davis, CA 95616
United States
Richard B. Evans (Contact Author)
University of Virginia (UVA) - Darden School of Business ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)
HOME PAGE: http://faculty.darden.virginia.edu/evansr/
Gregory B. Kadlec
Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )
1016 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-4316 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 11,916
Downloads: 3,416
Download Rank: 1,315
References:  41
Citations:  28

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.297 seconds