Diseconomies of Scope and Mutual Fund Performance
55 Pages Posted: 27 Nov 2016 Last revised: 12 Dec 2017
Date Written: February 23, 2017
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: Suggested Citation