Our study aims to explain the relationship between mutual fund performance, fund attributes, and company characteristics. This section describes the main hypotheses. The explanatory variables are divided into two groups, fund and country-level variables. Fund-level variables include size, age, fees (annual charges, initial charges, and redemption charges), management structure, and management tenure. Company-level variables include economic development, financial development, investor protection, and familiarity as explained by Abdel-Kader and Kuang (2007, p.26).
Fund Attributes
A number of fund performance studies consider fund-specific attributes as potential determinants of fund performance. Even if a large portion of mutual fund excess …show more content…
Is management skill more pronounced when a fund is small?
Large mutual funds present several advantages relative to small ones. First, they can benefit from economies of scale. Larger funds are able to spread fixed expenses over a larger asset base, and have more resources for research. Additionally, managers of large funds can obtain positions in beneficial investment opportunities not available to smaller market participants. Large funds are able to negotiate smaller spreads as they have large market positions and trading volumes.
Furthermore, brokerage commissions decline with the size of the transactions (Dimson 2008, p.102). Large funds, however, face some problems and management challenges and the scale ability of investments is determinant for the persistence of fund performance. While small funds can concentrate their money on a few investment positions, when funds become large managers must continue to find good investment opportunities and the effect of managerial skill becomes diluted (diseconomies of scale). Fees paid by investors, given that experienced managers might be more efficient in analyzing and processing information. Furthermore, managers that run a fund for a shorter period are usually more alert and have more incentives to perform …show more content…
It is associated with higher per capita income and better education and skills, as well as also with more developed industries, and more incentives for innovation and for new investments. Therefore, a company’s level of economic developments might influence the performance of the mutual fund industry. We use the gross domestic product per capita (GDP per capita) in U.S. dollars from the World Development Indicators (WDI) database as a measure of economic development. We expect higher GDP per capita to be associated with higher mutual fund
Fund Attributes
A number of fund performance studies consider fund-specific attributes as potential determinants of fund performance. Even if a large portion of mutual fund excess …show more content…
Is management skill more pronounced when a fund is small?
Large mutual funds present several advantages relative to small ones. First, they can benefit from economies of scale. Larger funds are able to spread fixed expenses over a larger asset base, and have more resources for research. Additionally, managers of large funds can obtain positions in beneficial investment opportunities not available to smaller market participants. Large funds are able to negotiate smaller spreads as they have large market positions and trading volumes.
Furthermore, brokerage commissions decline with the size of the transactions (Dimson 2008, p.102). Large funds, however, face some problems and management challenges and the scale ability of investments is determinant for the persistence of fund performance. While small funds can concentrate their money on a few investment positions, when funds become large managers must continue to find good investment opportunities and the effect of managerial skill becomes diluted (diseconomies of scale). Fees paid by investors, given that experienced managers might be more efficient in analyzing and processing information. Furthermore, managers that run a fund for a shorter period are usually more alert and have more incentives to perform …show more content…
It is associated with higher per capita income and better education and skills, as well as also with more developed industries, and more incentives for innovation and for new investments. Therefore, a company’s level of economic developments might influence the performance of the mutual fund industry. We use the gross domestic product per capita (GDP per capita) in U.S. dollars from the World Development Indicators (WDI) database as a measure of economic development. We expect higher GDP per capita to be associated with higher mutual fund