49 Pages Posted: 24 Jul 2006
Date Written: June 2007
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: 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
By Melih Alp