How Does Size Affect Mutual Fund Behavior?
Mungo Ivor Wilson
University of Oxford - Said Business School
Joshua Matthew Pollet
University of Illinois at Urbana-Champaign - Department of Finance
HKUST Business School Research Paper No. 07-06
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.
Number of Pages in PDF File: 49
Keywords: fund families, mutual funds, price impact, returns to scale
Date posted: July 24, 2006