Fund Size and Performance in a Market Crowded with Many Small Funds

摘要

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.