The Mismatch Between Mutual Fund Scale and Skill

Posted: 9 Nov 2017 Last revised: 26 Apr 2020

See all articles by Yang Song

Yang Song

University of Washington - Michael G. Foster School of Business

Date Written: Dec 12, 2019

Abstract

I demonstrate that skill and scale are mismatched among actively managed equity mutual funds. Many mutual fund investors confuse the effects of fund exposures to common systematic factors with managerial skill when allocating capital among funds. Active mutual funds with positive factor-related past returns thus accumulate assets to the point that they significantly underperform. I also show that the negative aggregate benchmark-adjusted performance of active equity mutual funds is mainly caused by this small subset of oversized funds.

Keywords: Mutual fund, Skill, Scale

Suggested Citation

Song, Yang, The Mismatch Between Mutual Fund Scale and Skill (Dec 12, 2019). Available at SSRN: https://ssrn.com/abstract=3065700 or http://dx.doi.org/10.2139/ssrn.3065700

Yang Song (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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