Quantifying Diseconomies Of Scale For Mutual Funds

Ying Liao, Cuixia Li (), Lei Jiang and Liang Peng
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Ying Liao: School of Statistics, Jiangxi University of Finance and Economics
Cuixia Li: School of Mathematics and Statistics, Xuzhou University of Technology
Lei Jiang: Department of Finance, School of Economics and Management, Tsinghua University
Liang Peng: Department of Risk Management and Insurance, Georgia State University

Annals of Economics and Finance, 2021, vol. 22, issue 1, 1-24

Abstract: The fund size is highly persistent and correlated with risk factor loadings. Hence, it is unrealistic to assume constant diseconomies of scale over a long time. The traditional two-step method underestimates the uncertainty of diseconomies of scale. We propose a one-step procedure with a random weighted bootstrap method to infer diseconomies of scale using rolling windows, which effectively solves the problems. Our empirical analysis using actively-managed U.S. equity mutual funds supports diseconomies of scale, and simulations show that our rigorous method outperforms the two-step one in terms of precise estimating uncertainty.

Keywords: Diseconomies of scale; Fixed effects panel regression; Mutual funds (search for similar items in EconPapers)
JEL-codes: C58 G23 (search for similar items in EconPapers)
Date: 2021
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