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Diseconomies of Scope and Mutual Fund Performance

42 Pages Posted: 27 Nov 2016 Last revised: 1 Mar 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 changes in performance of mutual funds that result from changes in the scope of responsibilities of fund managers. After confirming that scope is expanded (reduced) in response to positive (negative) past performance (alpha), we document that changes in manager-level scope attenuate fund-fund level performance differences after controlling for effects related to fund size. Our results suggest a significant diseconomy of scope exists with respect to performance similar to the diseconomies of scale previously highlighted and that, together, these two effects may explain the observed attenuation over time in abnormal relative mutual fund returns.

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 B. 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 Lars 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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