Do Mutual Funds Have Decreasing Returns to Scale? Evidence from Fund Mergers
AuthorMcLemore, Ping Wang
Committee ChairSias, Richard
MetadataShow full item record
PublisherThe University of Arizona.
RightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
AbstractUsing fund mergers as shocks to fund size, I analyze return-to-scale properties of mutual funds. The results show that acquiring funds experience performance deterioration after abnormal size increases due to mergers. Funds that have a larger shock in size at the time of mergers are more likely to experience worse declines in performance after the events. In the post-merger period, investors redeem their shares from the poorly performing acquiring funds, and both the declining performance and persistent capital outflows lead to decreases in size. As fund size decreases, performance tends to recover. These findings provide evidence that is consistent with mutual funds having decreasing returns to scale and more broadly with theoretical models of delegated portfolio, such as Berk and Green (2004).
Degree ProgramGraduate College