Is the active fund management industry concentrated enough?

David Feldman, Konark Saxena, Jingrui Xu

Research output: Contribution to journalArticlepeer-review

4 Scopus citations


We introduce a theoretical model of the active fund management industry (AFMI) in which performance and size depend on the AFMI's competitiveness (concentration). Under plausible assumptions, as AFMI's concentration decreases, so do fund managers’ incentives for exerting effort in search of alpha. Consequently, managers produce lower gross alpha, and rational investors, inferring lower expected AFMI performance, allocate a smaller portion of their wealth to active funds. Empirically, we find that a decrease in the US mutual fund industry concentration over our sample period is associated with a decrease in its net alpha and size (relative to stock market capitalization).

Original languageEnglish
Pages (from-to)23-43
Number of pages21
JournalJournal of Financial Economics
Issue number1
StatePublished - 1 Apr 2020
Externally publishedYes


  • Active fund management
  • Alpha
  • Effort
  • Industry size
  • Market concentration

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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