Diseconomies of Scale in Quantitative and Fundamental Investment Styles

Journal of Financial and Quantitative Analysis, forthcoming

48 Pages Posted: 18 Mar 2017 Last revised: 23 Jun 2022

See all articles by Richard B. Evans

Richard B. Evans

University of Virginia - Darden School of Business

Martin Rohleder

University of Augsburg

Hendrik Tentesch

University of Augsburg - Department of Finance and Banking

Marco Wilkens

University of Augsburg

Date Written: March 31, 2022

Abstract

We examine diseconomies of scale for two different investment approaches: quantitative and fundamental. Using separate account (SA) data where the investment approach is self-identified, we find that fundamental SAs exhibit greater diseconomies of scale than quantitative SAs. Looking at liquidity costs, we find that quantitative SAs hold more diversified portfolios of higher liquidity stocks than fundamental SAs, thereby reducing their expected liquidity costs. We also find that consistent with lower information processing/hierarchy costs, the speed of information diffusion is higher for quant SAs. Accounting for these differences helps to explain the differences in diseconomies of scale.

Keywords: Diseconomies of scale, quantitative, fundamental, performance, flows, hierarchy costs, information processing, separate accounts, institutional investing

JEL Classification: G11, G12, L11, L23, L25

Suggested Citation

Evans, Richard B. and Rohleder, Martin and Tentesch, Hendrik and Wilkens, Marco, Diseconomies of Scale in Quantitative and Fundamental Investment Styles (March 31, 2022). Journal of Financial and Quantitative Analysis, forthcoming , Available at SSRN: https://ssrn.com/abstract=2933546 or http://dx.doi.org/10.2139/ssrn.2933546

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/

Martin Rohleder (Contact Author)

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4120 (Phone)

Hendrik Tentesch

University of Augsburg - Department of Finance and Banking ( email )

Universitaetsstr. 2
Augsburg, 86135
Germany

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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