Diseconomies of Scope and Mutual Fund Performance

We examine the changes in performance of mutual fund managers that result from changes in the scope of their duties. While confirming that the scope of manager responsibilities is expanded in response to positive past performance, we demonstrate that this expanded scope attenuates subsequent performance after controlling for effects related to fund size. Conversely, reductions in scope enhance performance. Our results suggest a significant diseconomy of scope exists with respect to performance similar to the diseconomies of scale previously highlighted and that, together, these two effects may explain the observed attenuation over time in abnormal relative mutual fund returns.