Competition for Investment Opportunities and Level of Active Fund Management

36 Pages Posted: 28 Aug 2023 Last revised: 9 Jan 2024

Date Written: August 15, 2023

Abstract

This paper builds upon the model of decreasing returns to fund scale and demonstrates that as the level of competition for stocks in the investment universe rises, fund managers can mitigate the adverse impact of competition on gross alpha by reducing the level of active management. The empirical findings support this prediction, suggesting that fund managers respond rationally when facing greater competition. Moreover, I find that managers of large funds tend to reduce active share to a greater extent than managers of other funds in response to competition, although this effect is not monotonically increasing in fund size.

Keywords: Mutual funds, Active fund management, Competition

JEL Classification: G11, G23

Suggested Citation

Ørpetveit, Andreas, Competition for Investment Opportunities and Level of Active Fund Management (August 15, 2023). Available at SSRN: https://ssrn.com/abstract=4541316 or http://dx.doi.org/10.2139/ssrn.4541316

Andreas Ørpetveit (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
73
Abstract Views
396
Rank
596,581
PlumX Metrics