Transaction costs, portfolio characteristics, and mutual fund performance

Busse, JA, Chordia, Tarun, Jiang, L and Tang, Y 2021, Transaction costs, portfolio characteristics, and mutual fund performance, Management Science, vol. 67, no. 2, pp. 1227-1248, doi: 10.1287/mnsc.2019.3524.

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Title Transaction costs, portfolio characteristics, and mutual fund performance
Author(s) Busse, JA
Chordia, Tarun
Jiang, L
Tang, Y
Journal name Management Science
Volume number 67
Issue number 2
Start page 1227
End page 1248
Total pages 22
Publisher Institute for Operations Research and the Management Sciences (INFORMS)
Place of publication Providence, R.I.
Publication date 2021-02
ISSN 0025-1909
Summary We study the interdependencies between transaction costs, portfolio characteristics, and mutual fund performance. Using a novel data set of actual mutual fund trades, we find that, controlling for investment style, larger funds realize lower percentage transaction costs than smaller funds. Larger mutual funds trade less frequently and hold bigger stocks to actively avoid incurring higher trading costs. Gross returns of larger funds are lower than those of smaller funds due, in part, to the characteristics of their holdings, which suggests that decreasing returns to scale could arise due to limited investment opportunities because of trading cost constraints. Taken together, our results highlight the trade-offs faced by mutual funds between trading costs, portfolio characteristics, and fund performance as they grow in size. This paper was accepted by Karl Diether, finance.
Language eng
DOI 10.1287/mnsc.2019.3524
Field of Research 08 Information and Computing Sciences
15 Commerce, Management, Tourism and Services
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
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Document type: Journal Article
Collections: Faculty of Business and Law
Department of Finance
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