How Much Does Size Erode Mutual Fund Performance? A Regression Discontinuity Approach
Jonathan Reuter and
Eric Zitzewitz ()
No 16329, NBER Working Papers from National Bureau of Economic Research, Inc
The level of diseconomies of scale in asset management has important implications for tests of manager skill and the expected level of performance persistence. To identify the causal impact of fund size on future returns, we exploit the fact that small differences in returns can cause discrete changes in Morningstar ratings that, in turn, generate discrete differences in size. Despite robust evidence that Morningstar ratings increase fund size, our regression discontinuity estimates yield little evidence that fund size erodes returns. Consequently, any downward bias in standard estimates of performance persistence due to diseconomies of scale is likely to be small.
JEL-codes: G14 G23 G24 (search for similar items in EconPapers)
Note: AG AP
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