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Quantifying Diseconomies Of Scale For Mutual Funds

Author

Listed:
  • Ying Liao

    (School of Statistics, Jiangxi University of Finance and Economics)

  • Cuixia Li

    (School of Mathematics and Statistics, Xuzhou University of Technology)

  • Lei Jiang

    (Department of Finance, School of Economics and Management, Tsinghua University)

  • Liang Peng

    (Department of Risk Management and Insurance, Georgia State University)

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.

Suggested Citation

  • Ying Liao & Cuixia Li & Lei Jiang & Liang Peng, 2021. "Quantifying Diseconomies Of Scale For Mutual Funds," Annals of Economics and Finance, Society for AEF, vol. 22(1), pages 1-24, May.
    • Handle: RePEc:cuf:journl:y:2021:v:22:i:1:liaolijiangpeng
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    References listed on IDEAS

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    More about this item

    Keywords

    Diseconomies of scale; Fixed effects panel regression; Mutual funds;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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