The Effect of Fund Size on Performance:The Evidence from Active Equity Mutual Funds in Thailand

Abstract

The effect of fund size on performance is an important issue in portfolio performance literatures. This paper studies the effect of mutual fund size on its performance based on active equity mutual funds in Thailand during 2006-2012. The results show that there is a significant relationship between fund size and performance. However, this relationship is not linear but quadratic. The quadratic relationship found in this study implies that there is an optimal size of mutual fund. For relatively small funds, the performance increases as fund size increases. This can be explained by size advantage from economies of scale. However, when funds become larger and larger, the performance is deteriorated by the size due to diseconomies of scale.

Keywords: Portfolio Performance, Fund Size, Portfolio Management, Four-factor Model