Size Doesn't Matter: Dis-Economies of Scale in the Mutual Fund Industry Revisited

How Rational and Competitive Is the Market for Mutual Funds?*

Review of Finance ◽

10.1093/rof/rfz011 ◽

2019 ◽

Vol 24 (3) ◽

pp. 579-613 ◽

Cited By ~ 1

Author(s):

Markus Leippold ◽

Roger Rueegg

Keyword(s):

Mutual Funds ◽

Mutual Fund ◽

Null Hypothesis ◽

Economies Of Scale ◽

Management Fees ◽

Fund Industry ◽

Mutual Fund Industry ◽

Traditional Risk Factors ◽

The Impact ◽

Higher Sensitivity

Abstract To explore the rationality and competitiveness of the mutual fund industry, we analyze the alpha of active and index mutual funds from a global sample of more than 60,000 equity and fixed income funds and test the null hypothesis that alphas to investors are zero. We distinguish between institutional and retail investors since there are significant differences in management fees, economies of scale, and information asymmetries between these two groups. Using a new robust statistical test, we cannot reject our null hypothesis for the majority of investment categories. We find that the average active fund has less exposure to traditional risk factors, but higher sensitivity to alternative risk premia. Fund persistence and the impact of size and fees add further support to our conclusion that the mutual fund industry is highly competitive, except for US domestic funds. This set of funds is excessively overfunded compared with other fund categories.

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Cost Efficiencies in the Management of Commodity Mutual Funds

The Journal of Wealth Management ◽

10.3905/jwm.2018.21.3.059 ◽

2018 ◽

Keyword(s):

Mutual Funds ◽

Mutual Fund ◽

Average Cost ◽

Economies Of Scale ◽

Cost Elasticity ◽

Cost Efficiencies ◽

Fund Industry ◽

Mutual Fund Industry ◽

Fund Size ◽

The U.S

This article examines the determinants of cost efficiencies in the U.S. commodity mutual fund industry from 2001 to 2016. Empirical results show that cost increases in the U.S. commodity mutual fund industry have been less than proportional to increases in fund assets, pointing to economies of scale for the industry. Average cost elasticity varies by fund size, existence of 12b-1 fees, load versus no-load funds, and institutional versus retail funds. Funds without a 12b-1 plan show larger economies of scale than funds with a 12b-1 plan. Institutional funds show greater economies of scale than retail funds since 2010.

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