Premium
The Mismatch Between Mutual Fund Scale and Skill
Author(s) -
SONG YANG
Publication year - 2020
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12950
Subject(s) - open end fund , mutual fund , fund of funds , closed end fund , equity (law) , business , target date fund , finance , fund administration , passive management , actuarial science , institutional investor , corporate governance , market liquidity , political science , law
ABSTRACT I demonstrate that skill and scale are mismatched among actively managed equity mutual funds. Many mutual fund investors confuse the effects of fund exposures to common systematic factors with managerial skill when allocating capital among funds. Active mutual funds with positive factor‐related past returns thus accumulate assets to the point that they significantly underperform. I also show that the negative aggregate benchmark‐adjusted performance of active equity mutual funds is driven mainly by these oversized funds.