Publication Type
Working Paper
Version
publishedVersion
Publication Date
4-2017
Abstract
Larger mutual funds underperform smaller funds even though they have lower percentage transaction costs. Larger funds hold and trade a larger fraction of bigger, more liquid stocks, which leads to lower percentage transaction costs than smaller funds. Smaller funds outperform larger funds primarily when small cap stocks outperform large cap stocks. Overall, we find that it is not trading costs but fund holding characteristics, especially the market capitalization of stock holdings, that drive diseconomies of scale in the mutual fund industry.
Keywords
Mutual funds, transaction costs, fund size, stock size, fund performance
Discipline
Finance and Financial Management
Research Areas
Finance
First Page
1
Last Page
90
Citation
Busse, Jeffrey; Chordia, Tarun; JIANG, Lei; and TANG, Yuehua.
Mutual Fund Trading Costs and Diseconomies of Scale. (2017). 1-90.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4536
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://ssrn.com/abstract=2350583