How does size affect mutual fund behavior?

Joshua M. Pollet, Mungo Wilson

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish (US)
Pages (from-to)2941-2969
Number of pages29
JournalJournal of Finance
Volume63
Issue number6
DOIs
StatePublished - Dec 2008
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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