Resurrecting mutual fund models : a regression discontinuity approach
by Yu Zhang
THESIS
2019
Ph.D. Finance
vii, 41 pages : illustrations ; 30 cm
Abstract
I exploit a series of natural experiments to provide quantitative estimates of diseconomies
of scale in fund management. My evidence shows that such diseconomies exist, are
quantitatively an order of magnitude higher than previously believed, and are large
enough to match many workhorse models of mutual funds, like Berk and Green's (2004)
model. The regression discontinuity setting, where variation in capital
flow is generated
by investors' attention to the Wall Street Journal "Category Kings" ranking of funds,
also enables me to show that trading costs and non-scalability of investment strategy
are two important sources of diseconomies of scale.
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