Do Funds Make More When They Trade More?

Robert Stambaugh, Pástor, Luboš and Lucian Taylor
Authors registered in the RePEc Author Service: Lubos Pastor

No 10261, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We find that active mutual funds perform better after trading more. This time-series relation between a fund?s turnover and its subsequent benchmarkadjusted return is especially strong for small, high-fee funds. These results are consistent with high-fee funds having greater skill to identify time-varying profit opportunities and with small funds being more able to exploit those opportunities. In addition to this novel evidence of managerial skill and fund-level decreasing returns to scale, we find evidence of industry-level decreasing returns: The positive turnover-performance relation weakens when funds act more in concert. We also identify a common component of fund trading that is correlated with mispricing proxies and helps predict fund returns.

Keywords: Turnover; Skill; Performance; Active management; Mutual funds (search for similar items in EconPapers)
JEL-codes: G10 G20 (search for similar items in EconPapers)
Date: 2014-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Do Funds Make More When They Trade More? (2017)
Working Paper: Do Funds Make More When They Trade More? (2014)
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