Abstract
This paper empirically investigates the relation between fund size and its performance in UK equity market from 1998 to 2007. The main result is that large funds are found to outperform small funds. There is significant positive size effect for UK Smaller Companies sector and UK Equities Income sector. Macro-market environment tends to play an important role in determining size effect because significant positive size effect occurs in bull market from 2003 to 2007 and insignificant size effect occurs in bear market from 1998 to 2002. But this rule is not applicable to UK Smaller Companies sector, which reports constantly significant positive size effect. Economy of scale appears to be an appropriate explanation for our finding, according to which large funds can fully utilize their scales in bull market and outperform small funds.
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