How Does Size Affect Mutual Fund Behavior?

49 Pages Posted: 24 Jul 2006  

Mungo Ivor Wilson

University of Oxford - Said Business School

Joshua Matthew Pollet

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: June 2007

Abstract

If actively managed mutual funds suffer from diminishing returns to scale, funds should alter investment behavior as assets under management increase. Although asset growth has little effect on the behavior of the typical fund, we find that large funds and small-cap funds diversify their portfolios in response to growth. Greater diversification, especially for small-cap funds, is associated with better performance. Fund family growth is related to the introduction of new funds that hold different stocks from their existing siblings. Funds with many siblings diversify less rapidly as they grow, suggesting that the fund family may influence a fund's portfolio strategy.

Keywords: fund families, mutual funds, price impact, returns to scale

Suggested Citation

Wilson, Mungo Ivor and Pollet, Joshua Matthew, How Does Size Affect Mutual Fund Behavior? (June 2007). HKUST Business School Research Paper No. 07-06. Available at SSRN: https://ssrn.com/abstract=918250 or http://dx.doi.org/10.2139/ssrn.918250

Mungo Ivor Wilson

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288914 (Phone)

Joshua Matthew Pollet (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 344-4311 (Phone)

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