Fund Tradeoffs

Lubos Pastor, Robert Stambaugh and Lucian A. Taylor

No 23670, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study tradeoffs among active mutual funds' characteristics. In both our equilibrium model and the data, funds with larger size, lower expense ratio, and higher turnover hold more-liquid portfolios. Portfolio liquidity, a concept introduced here, depends not only on the liquidity of the portfolio's holdings but also on the portfolio's diversification. We also confirm other model-predicted tradeoffs: Larger funds are cheaper. Larger and cheaper funds are less active, based on our new measure of activeness. Better-diversified funds hold less-liquid stocks; they are also larger, cheaper, and trade more. These tradeoffs provide novel evidence of diseconomies of scale in active management.

JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2017-08
Note: AP
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Published as Ľuboš Pástor & Robert F. Stambaugh & Lucian A. Taylor, 2020. "Fund Tradeoffs," Journal of Financial Economics, .

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Journal Article: Fund tradeoffs (2020)
Working Paper: Fund Tradeoffs (2017)
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