[Does Fund Size affect Fund Performance]

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Acknowledgement

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

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Abstract

Each and every stock market in the world goes through the risk associated with the investments. This project is about mutual funds, how they are managed, the risk and returns associated with the portfolio, how the assets are allocated and how an investor should take decision in regards to the assets in his portfolio to minimize risk and increase the returns.For any portfolio performance, asset allocation is most important factor which is a systematic division and risk management of investment among various asset classes such as fixed income or equities. Asset allocation helps in determining the return on the asset, and of which major part depends on the variation of the securities owned in the portfolio. For maximum return and minimum risk from any portfolio one needs to use a proper asset allocation, and not to rely fully on the financial papers, magazines.

Chapter III

1. Methodology

2 Hypotheses, Data and Methodology

2.1 Hypotheses

A mutual fund is not a stand alone entity, but belongs to a broader organizational structure, the family. The family could impact the decisions of the fund, and thus could potentially have a significant effect on the fund, its performance and the persistence of this performance over time. In fact, there are two main reasons for the family to want to influence that performance.

3.3 Robustness Tests

We perform several robustness tests in order to check that indeed the results are a reflection of our hypotheses and not a statistical artifact.

3.3.1 Fund Size

Table 5 Panel B includes an interesting result. There is a systematic pattern in the Mean Total Assets across all the portfolios. The funds in the top and bottom portfolio have a substantially lower average amount of assets under management than the funds in all other

?portfolios. This result is not surprising, it is well documented that size and performance exhibit negative correlation. The only concern one can have while looking at these figures is whether there could be a way that our results are driven by fund size. In order to investigate this possibility, we perform the standard persistence methodology as described in section 3.1, where instead of sorting by alphas we sort by fund size (market capitalization).

Using the same sub-sample and gross returns, at the beginning of every year, we rank each fund by its size and assign the funds to one of 10 portfolios based on these rankings. The composition of these 10 rank-sorted portfolios remains unchanged for the following 12 months. Following the sorting procedure a value weighted return series ...