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Threshold effect of scale and skill in active mutual fund management

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  • Chong, Terence Tai-Leung
  • Lee, Nayoung
  • Sio, Chan-Ip

Abstract

In this paper, we apply threshold estimation techniques to study the size-performance relationship in the US mutual fund industry. Existing studies have found diseconomies of scale, and we add our contribution to this by considering possible non-linear decreasing returns to scale caused by fund age and manager tenure. We find significant threshold effects of both fund age and manager tenure at approximately three to four years in the size-performance relationship. Compared with younger funds, older funds have more severe decreasing returns to scale as the industry size increases.

Suggested Citation

  • Chong, Terence Tai-Leung & Lee, Nayoung & Sio, Chan-Ip, 2020. "Threshold effect of scale and skill in active mutual fund management," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818305618
    DOI: 10.1016/j.najef.2019.101079
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    Cited by:

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    2. Juan Carlos Matallín-Sáez & Amparo Soler-Domínguez & Diego Víctor Mingo-López, 2021. "On management risk and price in the mutual fund industry: style and performance distribution analysis," Risk Management, Palgrave Macmillan, vol. 23(1), pages 150-171, June.

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    More about this item

    Keywords

    Active mutual fund management; Returns to scale; Threshold estimation;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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