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Fund Size and Performance in a Market Crowded with Many Small Funds
Author(s) -
Ban Juil,
Choe Hyuk
Publication year - 2013
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12017
Subject(s) - closed end fund , open end fund , fund of funds , income fund , business , finance , manager of managers fund , sovereign wealth fund , cash , index fund , fund administration , feeder fund , passive management , institutional investor , economics , incentive , microeconomics , market liquidity , corporate governance
In a market crowded with many small funds, a fund manager is likely to manage more than one fund. We hypothesize and confirm that, in this situation, fund managers tend to neglect very small funds by simply holding cash rather than investing because of their limited time and efforts. By examining the Korean fund market, where one fund manager simultaneously manages about ten funds on average, we find that the cash holding ratio monotonically decreases with fund size. While small funds perform worse than large funds in appearance, the negative relationship between size and performance disappears after being controlled for the cash holding ratio.