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Diseconomies of Scope and Mutual Fund Performance

55 Pages Posted: 27 Nov 2016 Last revised: 12 Dec 2017

Richard B. Evans

University of Virginia - Darden School of Business

Javier Gil-Bazo

Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE)

Marc L. Lipson

University of Virginia - Darden School of Business

Date Written: February 23, 2017

Abstract

We examine the link between the scope of asset managers’ responsibilities and mutual fund performance. We show that superior fund performance results in expanded manager responsibilities (i.e. the number of funds/total assets managed) and that the performance of each fund is negatively related to this increase in manager scope. To address endogeneity, we confirm our results using fund family mergers as an instrument for scope changes and recursively demeaned measures of scope. Our results suggest that diseconomies of scope affect fund performance in a way analogous to, but distinct from, diseconomies of scale.

Keywords: mutual fund managers, performance persistence, diseconomies of scale, diseconomies of scope

JEL Classification: G23

Suggested Citation

Evans, Richard B. and Gil-Bazo, Javier and Lipson, Marc L., Diseconomies of Scope and Mutual Fund Performance (February 23, 2017). Darden Business School Working Paper No. 2874975. Available at SSRN: https://ssrn.com/abstract=2874975 or http://dx.doi.org/10.2139/ssrn.2874975

Richard Evans

University of Virginia - 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/

Javier Gil-Bazo (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Marc Lipson

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lipson.htm

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