Too big to risk : risk profile in different sized mutual funds
Vikström, Joonas (2018)
2018
Kauppatieteiden tutkinto-ohjelma - Degree Programme in Business Studies
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Hyväksymispäivämäärä
2018-04-06
Julkaisun pysyvä osoite on
http://urn.fi/URN:NBN:fi:uta-201804091513
http://urn.fi/URN:NBN:fi:uta-201804091513
Tiivistelmä
The Finnish mutual fund market has multiple options for fund investors. There is a massive scale in terms of different sized mutual funds to choose from. Most of the funds are UCITS regulated equity funds and registered in Luxembourg. This research aims to reveal any correlations between the underlying risk profile of the equity based mutual funds and the size measured in assets under management. The timing is perfect for the research since the Finnish mutual fund market is celebrating its 30-year anniversary and the assets under management are at the all-time high. Additionally, the largest regulatory outline so far aiming for investor protection, MiFID II, came into force in the beginning of the year 2018. Therefore, the transparency regarding financial risks of the mutual funds cannot be highlighted enough.
The research is executed with quantitative methods and especially Pearson’s correlation tests. The examined sample is based on Morningstar Inc’s calculations and reference data. In total, the reference data consist of 1078 mutual funds with their measurements based on the availability. There are distinct capital asset pricing model-based risk measures and other relevant measures examined one at a time. Also, all measures are examined with the full sample and in deciles in order to segregate phenomenon across the full scale and possible local size ranges.
The empirical research reveals that the risk profile does not correlate remarkably with the assets under management. Though, some inconsistencies can be found from the larger end of the scale. There is indicative evidence that the diseconomies of scale are affecting the larger end of the scale. This leads to unreasonable risk taking for the investors without corresponding reward. Furthermore, the research finds that the consensus of the negative correlation between mutual funds’ expense ratios and assets under management remains. However, there are surprising inconsistencies in the mid-sized mutual funds in contrary with the consensus.
The research is executed with quantitative methods and especially Pearson’s correlation tests. The examined sample is based on Morningstar Inc’s calculations and reference data. In total, the reference data consist of 1078 mutual funds with their measurements based on the availability. There are distinct capital asset pricing model-based risk measures and other relevant measures examined one at a time. Also, all measures are examined with the full sample and in deciles in order to segregate phenomenon across the full scale and possible local size ranges.
The empirical research reveals that the risk profile does not correlate remarkably with the assets under management. Though, some inconsistencies can be found from the larger end of the scale. There is indicative evidence that the diseconomies of scale are affecting the larger end of the scale. This leads to unreasonable risk taking for the investors without corresponding reward. Furthermore, the research finds that the consensus of the negative correlation between mutual funds’ expense ratios and assets under management remains. However, there are surprising inconsistencies in the mid-sized mutual funds in contrary with the consensus.