Discussion Paper Details
Please find the details for DP10261 in an easy to copy and paste format below:
Title: Do Funds Make More When They Trade More?
Author(s): Lubo? Pástor, Robert F. Stambaugh and Lucian Taylor
Publication Date: November 2014
Keyword(s): active management, mutual funds, performance, skill and turnover
Programme Area(s): Financial Economics
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.
For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10261
Pástor, L, Stambaugh, R and Taylor, L. 2014. 'Do Funds Make More When They Trade More?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10261