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A Horizon-Based Decomposition of Mutual Fund Value Added Using Transactions
Stockholm University, Faculty of Social Sciences, Stockholm Business School. Aarhus University, Denmark.
Number of Authors: 42024 (English)In: Journal of Finance, ISSN 0022-1082, E-ISSN 1540-6261, Vol. 79, no 3, p. 1831-1882Article in journal (Refereed) Published
Abstract [en]

We decompose mutual fund value added by the length of funds' holdings using transaction-level data. We motivate our decomposition with a model featuring horizon-specific investment ideas, where short-term ideas are less scalable because the associated trades cannot be spread over time. Fund turnover correlates negatively with the horizon over which value is added and positively with price impact costs. As predicted, holdings of high-turnover funds add a substantial amount of value in the first two weeks, of which more than 80% is earned on Federal Open Market Committee (FOMC) and earnings announcement days. Holdings of low-turnover funds add value only over longer horizons.

Place, publisher, year, edition, pages
2024. Vol. 79, no 3, p. 1831-1882
National Category
Economics
Identifiers
URN: urn:nbn:se:su:diva-228673DOI: 10.1111/jofi.13331ISI: 001196435900001Scopus ID: 2-s2.0-85189480685OAI: oai:DiVA.org:su-228673DiVA, id: diva2:1853966
Available from: 2024-04-24 Created: 2024-04-24 Last updated: 2024-09-04Bibliographically approved

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Xing, Ran

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