When a market is crowded with many small funds, a fund manager is likely to manage more than one fund. We argue that a kind of agency problem emerges 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 in managing many funds simultaneously. We investigate the Korean fund market as a case: about half of the entire funds are very small funds whose sizes are below 5 billion Korean won (less than five million U.S. dollars), and one fund manager simultaneously manages about 10 funds on average. We find that small funds perform worse than large funds in the Korean market. We use the cash holding ratio as a proxy for the manager‟s negligence. We find that cash holding ratio monotonically decreases with fund size. As our negligence hypothesis predicts, fund size is indeed unrelated to fund performance after being controlled for the cash holding ratio.
Keywords: fund size, fund performance, agency conflict, cash holding ratio, fund family
JEL Classification: G20, G23, G28
학회소식
공지사항
[2011년 제 4차] Fund Size and Performance in a Market Crowded with
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2011-12-07