Diseconomies of Scale in Active Management: Robust Evidence
Robert F. Stambaugh,
Lucian A. Taylor and
Critical Finance Review, 2022, vol. 11, issue 3-4, 593-611
We take a deeper look at the robustness of evidence presented by PÃ¡stor et al. (2015) and Zhu (2018), who find that an actively managed mutual fundâ€™s returns relate negatively to both fund size and the size of the active mutual fund industry. When we apply robust regression methods, we confirm both studiesâ€™ inferences about scale diseconomies at the fund and industry levels. Moreover, data errors play no role, as both studiesâ€™ results are insensitive to applying various error screens and using alternative return benchmarks. We reject constant returns to scale even after dropping 25% of the most extreme return observations. Finally, we caution that asymmetric removal of influential observations delivers biased conclusions about diseconomies of scale.
Keywords: Returns to scale; Active management; Mutual funds (search for similar items in EconPapers)
JEL-codes: G11 G23 J24 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:now:jnlcfr:104.00000121
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