Threshold effect of scale and skill in active mutual fund management |
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| Institution: | 1. Department of Economics and Lau Chor Tak Institute of Global Economics and Finance, The Chinese University of Hong Kong, Hong Kong;2. Department of Economics, University of Cincinnati, United States;3. Department of Economics, The Chinese University of Hong Kong, Hong Kong;1. Department of Management Sciences, COMSATS University Islamabad, Attock Campus, Pakistan;2. Rennes School of Business, Rennes City, Brittany, France;3. Schulich School of Business, York University, Toronto, Canada;4. Department of Economics, Pusan National University, Busan, Republic of Korea;1. Département des sciences administratives, Université du Québec (Outaouais), Campus St. Jérôme, 5 rue St Joseph, St Jérôme, Québec J7Z 0B7, Canada;2. Université du Québec (Montréal), École des sciences de la gestion, 315 Ste.-Catherine est, R-2915, Montréal, Québec H2X 3X2, Canada;3. Chaire d’information financière et organisationnelle (Université du Québec à Montréal), and Université du Québec en Outaouais, Canada;1. Department of Business Administration, Fu Jen Catholic University, No. 510, Zhongzheng Rd., Xinzhuang Dist., New Taipei City 24205, Taiwan;2. Department of Business Administration, National Chin-Yi University of Technology, No. 57, Sec. 2, Zhongshan Rd., Taiping Dist., Taichung 41170, Taiwan |
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| 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. |
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| Keywords: | Active mutual fund management Returns to scale Threshold estimation |
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