Position adjusted turnover ratio and mutual fund performance

Yuhong Fan

Studies in Economics and Finance, 2018, vol. 35, issue 1, 65-80

Abstract: Purpose - The purpose of this study is to examine the impact of position adjusted turnover ratio on mutual fund performance. Design/methodology/approach - The author calculates position adjusted turnover ratio in the same three steps asEdelenet al.(2013). Position adjusted turnover ratio is intended to be a trading cost proxy that captures both fund trading volume and per-trade costs. A metric of eight Morningstar performance measures is utilized. Findings - Results show that funds with a higher position adjusted turnover ratio tend to have a lower risk-adjusted performance, such as indicated by both Sharpe and Sortino ratios, and even though these funds may have a higher annualized return. Research limitations/implications - The sample selection process is subject to a survival bias. Also, this study utilizes Morningstar performance measures rather than the widely used factors models. Practical implications - This study examines the impact of invisible costs from fund trading. These findings encourage fund managers to take strategic steps to reduce the overall invisible cost impact to improve fund performance. Originality/value - Few studies have investigated fund trading cost measured by position adjusted turnover ratio and its impact on fund performance. Further, this study contributes to current literature by using eight Morningstar fund performance variables, which are practitioner-oriented and are accessible by investors.

Keywords: Mutual fund; Fund performance; Fund trading cost; Position adjusted turnover ratio (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-03-2016-0075

DOI: 10.1108/SEF-03-2016-0075

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