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| Author: | Ang, J. S. Lin, J. W. |
| Title: | A Fundamental Approach to Estimating Economies of Scale and Scope of Financial Products: The Case of Mutual Funds |
| Journal: | Review of Quantitative Finance and Accounting
2001 : MAY, VOL. 16:3, p. 205-222 |
| Index terms: | FINANCE ACCOUNTING ECONOMIES OF SCALE UNIT TRUSTS DIVERSIFICATION |
| Language: | eng |
| Abstract: | The authors propose a 'Fundamental' approach to estimate the economies of scale and scope for financial institutions offering multi-product lines. The authors first estimate pure economies of scale from its fundamental definition, which is the marginal cost reduction that is to be achieved by single product firms of increasing size that offer the same product. Similarly, the authors estimate the economies of scope from its fundamental definition, as the marginal cost reduction achieved by the addition of a new product line. Operationally, the authors compare the cost of operating a say, 3 product-line financial institutions with the cost of operating a portfolios of companies that are synthetically created from a control sample of financial institutions offering fewer, such as 2 and 1 similar product lines. |
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