How Does Size Affect Mutual Fund Behavior?
Article first published online: 11 NOV 2008
© 2008 The American Finance Association
The Journal of Finance
Volume 63, Issue 6, pages 2941–2969, December 2008
How to Cite
POLLET, J. M. and WILSON, M. (2008), How Does Size Affect Mutual Fund Behavior?. The Journal of Finance, 63: 2941–2969. doi: 10.1111/j.1540-6261.2008.01417.x
- Issue published online: 11 NOV 2008
- Article first published online: 11 NOV 2008
If actively managed mutual funds suffer from diminishing returns to scale, funds should alter investment behavior as assets under management increase. Although asset growth has little effect on the behavior of the typical fund, we find that large funds and small-cap funds diversify their portfolios in response to growth. Greater diversification, especially for small-cap funds, is associated with better performance. Fund family growth is related to the introduction of new funds that hold different stocks from their existing siblings. Funds with many siblings diversify less rapidly as they grow, suggesting that the fund family may influence a fund's portfolio strategy.