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Does size affect mutual fund performance? A general approach

Author

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  • Laurent Bodson

    (HEC-Management School, University of Liege)

  • Laurent Cavenaile
  • Danielle Sougné

Abstract

In this article, we study the potential relationship between mutual fund size and performance in a general framework. We sequentially test for a linear and a quadratic relationship using several traditional performance measures, as well as a new measure, on the basis of multi-factor models. We find evidence of a concave quadratic relationship between mutual-fund performance and size, which implies the existence of an optimal medium size in terms of performance.

Suggested Citation

  • Laurent Bodson & Laurent Cavenaile & Danielle Sougné, 2011. "Does size affect mutual fund performance? A general approach," Journal of Asset Management, Palgrave Macmillan, vol. 12(3), pages 163-171, August.
    • Handle: RePEc:pal:assmgt:v:12:y:2011:i:3:d:10.1057_jam.2011.30
    DOI: 10.1057/jam.2011.30
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    References listed on IDEAS

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    1. Yan, Xuemin (Sterling), 2008. "Liquidity, Investment Style, and the Relation between Fund Size and Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(3), pages 741-767, September.
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    4. Latzko, David A, 1999. "Economies of Scale in Mutual Fund Administration," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(3), pages 331-339, Fall.
    5. Ding, Bill & Shawky, Hany A. & Tian, Jianbo, 2009. "Liquidity shocks, size and the relative performance of hedge fund strategies," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 883-891, May.
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    7. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    8. Joseph Chen & Harrison Hong & Ming Huang & Jeffrey D. Kubik, 2004. "Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization," American Economic Review, American Economic Association, vol. 94(5), pages 1276-1302, December.
    9. Manuel Ammann & Patrick Moerth, 2005. "Impact of fund size on hedge fund performance," Journal of Asset Management, Palgrave Macmillan, vol. 6(3), pages 219-238, October.
    10. Stephen Zera & Jeff Madura, 2001. "The empirical relationship between mutual fund size and operational efficiency," Applied Financial Economics, Taylor & Francis Journals, vol. 11(3), pages 243-251.
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    Cited by:

    1. Antonella Basso & Stefania Funari, 2017. "The role of fund size in the performance of mutual funds assessed with DEA models," The European Journal of Finance, Taylor & Francis Journals, vol. 23(6), pages 457-473, May.
    2. Dariusz Filip, 2017. "Mutual Funds: Does the Performance Erosion Effect Exist? Evidence from the Czech Republic, Hungary and Poland," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(6), pages 512-538, October.

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