Scale and Skill in Active Management

Robert Stambaugh, Pástor, Luboš and Lucian Taylor
Authors registered in the RePEc Author Service: Lubos Pastor

No 9854, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We empirically analyze the nature of returns to scale in active mutual fund management. We find strong evidence of decreasing returns at the industry level: As the size of the active mutual fund industry increases, a fund's ability to outperform passive benchmarks declines. At the fund level, all methods considered indicate decreasing returns, but estimates that avoid econometric biases are insignificant. We also find that the active management industry has become more skilled over time. This upward trend in skill coincides with industry growth, which precludes the skill improvement from boosting fund performance. Finally, we find that performance deteriorates over a typical fund's lifetime. This result can also be explained by industry-level decreasing returns to scale.

Keywords: Mutual funds; Returns to scale; Skill (search for similar items in EconPapers)
JEL-codes: G10 G23 J24 (search for similar items in EconPapers)
Date: 2014-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Scale and skill in active management (2015)
Working Paper: Scale and Skill in Active Management (2014)
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