Empirical Analysis Between Open-end Fund Performance And Fund Size

With rapid development of China financial sector in the past decades, the open-end fund has been experiencing a period of explosive growth. But the performance among funds of different sizes is however not always even.In this paper, we examine the relationships between open-end fund performance and its size. We made use of three different performance measures for the open-end funds. These are: the fund's quarterly net rate of return, the return adjusted by capital asset pricing model (CAPM), and the return adjusted by the Fama-French three factor model. The analyses are carried out respectively by using cross-sectional regression analysis and panel data regression analysis. We found that the size of fund have a significant negative impact on fund performance, this is in contrast to the increasing return to scale hypothesis. This result could be due to the nature of managerial inefficiency for large scale open end fund, the difficulty in picking stocks, and other types of conflicts between investors and the fund owners.The analysis was carried out by adopting the CAPM and Fama-French three factor models with adjustment made concerning the existence of heterogeneity. We made use of lag performance of the fund, the size of company, and fund age as control variables in the regression analysis. This greatly improved the fitting of the model.