Quantifying Diseconomies Of Scale For Mutual Funds

38 Pages Posted: 1 Apr 2020 Last revised: 18 Sep 2020

See all articles by Lei Jiang

Lei Jiang

Tsinghua University

cuixia li

Xuzhou University of Technology

Ying Liao

Jiangxi University of Finance and Economics - School of Statistics

Liang Peng

Georgia State University - Risk Management & Insurance Department

Date Written: September 10, 2020

Abstract

The fund size is highly persistent and correlated with risk factor loadings. Hence, it is unrealistic to assume constant diseconomies of scale over a long time. The traditional two-step method underestimates the uncertainty of diseconomies of scale. We propose a one-step procedure with a random weighted bootstrap method to infer diseconomies of scale using rolling windows, which effectively solves the problems. Our empirical analysis using actively-managed U.S. equity mutual funds supports diseconomies of scale, and simulations show that our rigorous method outperforms the two-step one in terms of precise estimating uncertainty.

Keywords: Diseconomies of scale, fixed effects panel regression, mutual funds

JEL Classification: G23, C58

Suggested Citation

Jiang, Lei and li, cuixia and Liao, Ying and Peng, Liang, Quantifying Diseconomies Of Scale For Mutual Funds (September 10, 2020). Available at SSRN: https://ssrn.com/abstract=3549638 or http://dx.doi.org/10.2139/ssrn.3549638

Lei Jiang (Contact Author)

Tsinghua University ( email )

Beijing, 100084
China

Cuixia Li

Xuzhou University of Technology ( email )

No. 2 Lishui Road
Xuzhou, Jiangsu 221018
China

Ying Liao

Jiangxi University of Finance and Economics - School of Statistics ( email )

No. 169, East Shuanggang Road
Nanchang, 330013
China

Liang Peng

Georgia State University - Risk Management & Insurance Department

P.O. Box 4036
Atlanta, GA 30302-4036
United States

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