Optimal Asset Size for U.S. Small-Cap Equity Mutual Funds

Abstract

This paper provides empirical estimates for the optimal asset size for small-cap Growth and Value mutual funds. Using Morningstar mutual fund data for the period 1997 through 2003, we obtain a sample of 1,950 fund-years for small-cap growth and 971 fund-years for small-cap value funds. We find that the optimal asset size for growth and value small-cap funds are $1,008 million and $1,245 million, respectively. Moreover, we document a significant relationship between a fund's performance in one period and its asset growth in the next period. These results have practical implications for investors and fund managers.