More Is Less - Scalability in Swedish Mutual Equity Funds

University essay from Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Abstract: This thesis studies the relationship between fund size and performance of open-ended Swedish mutual equity funds between 2014-2019. The fund industry has been fast growing and the landscape has changed with extensive inflows and ever larger funds. When studying the scale impact on performance, we deepen the analysis by examining scalability across funds with different investment strategies. We find a negative relationship between fund size, a diseconomy of scale, significant at the 1% level. This is more prominent in funds investing in small- and mid-capitalisation stocks as well as in growth stocks. The results from our cross-sectional regressions and panel data analysis are aligned with the majority of previous research on other markets. Our findings have enabled us to further analyse how theories regarding organisational structures and liquidity affect the scalability of funds.

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