Skill, scale, and value creation in the mutual fund industry

Laurent Barras, Olivier Scaillet and Patrick Gagliardini

No unige:150822, Working Papers from University of Geneva, Geneva School of Economics and Management

Abstract: We develop a flexible and bias-adjusted approach to jointly examine skill, scalability, and value added across individual funds. We find that skill and scalability (i) vary substantially across funds, and (ii) are strongly related as great investment ideas are difficult to scale up. The combination of skill and scalability produces a value added that (i) is positive for the majority of funds, and (ii) approaches its optimal level after an adjustment period possibly due to investors' learning. These results are consistent with theoretical models in which funds are skilled and able to extract economic rents from capital markets.

Keywords: Mutual funds; Skill; Scale; Value added; Nonparametric estimation; Large panel; Error-in-variable bias (search for similar items in EconPapers)
JEL-codes: C14 C33 C58 G11 G12 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-dem
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Journal Article: Skill, Scale, and Value Creation in the Mutual Fund Industry (2022)
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