THESIS
2016
xi, 81 pages : illustrations ; 30 cm
Abstract
Previous literature has documented mixed evidence on estimating mutual fund size-performance relation. This thesis tests the diseconomies of scale hypothesis of Berk
and Green (2004) by exploiting an exogenous variation in capital flow generated by
investors attention on a mutual fund ranking list. Wall Street Journal publishes top
ten performance mutual funds for every category in each quarter, which enables a clean
RD design setting. Mutual funds that just make the list receive 2.4 percentage point
additional capital flow in the next quarter compared with the ones that just miss the
list. I find that a 10% unexpected increase in capital flow causes 0.95 percentage point
of reduction in alpha during the following quarter. The RDD estimation is around seven
times larger than OLS...[
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Previous literature has documented mixed evidence on estimating mutual fund size-performance relation. This thesis tests the diseconomies of scale hypothesis of Berk
and Green (2004) by exploiting an exogenous variation in capital flow generated by
investors attention on a mutual fund ranking list. Wall Street Journal publishes top
ten performance mutual funds for every category in each quarter, which enables a clean
RD design setting. Mutual funds that just make the list receive 2.4 percentage point
additional capital flow in the next quarter compared with the ones that just miss the
list. I find that a 10% unexpected increase in capital flow causes 0.95 percentage point
of reduction in alpha during the following quarter. The RDD estimation is around seven
times larger than OLS estimation, which provides strong evidence in favour of the Berk
and Green hypothesis.
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