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Skill, scale, and value creation in the mutual fund industry

Barras, Laurent
Gagliardini, Patrick
Year 2021
Abstract We develop a flexible and bias-adjusted approach to jointly examine skill, scalability, and value added across individual funds. We find that skill and scalability (i) vary substantially across funds, and (ii) are strongly related as great investment ideas are difficult to scale up. The combination of skill and scalability produces a value added that (i) is positive for the majority of funds, and (ii) approaches its optimal level after an adjustment period possibly due to investors' learning. These results are consistent with theoretical models in which funds are skilled and able to extract economic rents from capital markets.
Keywords Mutual fundsSkillScaleValue addedNonparametric estimationLarge panelError-in-variable bias
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Research group Geneva Finance Research Institute (GFRI)
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BARRAS, Laurent, SCAILLET, Olivier, GAGLIARDINI, Patrick. Skill, scale, and value creation in the mutual fund industry. 2021 https://archive-ouverte.unige.ch/unige:150822

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Deposited on : 2021-04-06

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