Transaction-cost Expenditures and the Relative Performance of Mutual Funds
University of Oregon
Roger M. Edelen
University of California, Davis - Graduate School of Management
Gregory B. Kadlec
Virginia Polytechnic Institute & State University - Pamplin College of Business
WFIC Working Paper No. 00-02
We directly estimate annual trading costs for a sample of equity mutual funds and find that these costs are large and exhibit substantial cross sectional variation. Trading costs average 0.78% of fund assets per year and have an inter-quartile range of 0.59%. Trading costs, like expense ratios, are negatively related to fund returns and we find no evidence that on average trading costs are recovered in higher gross fund returns. We find that our direct estimates of trading costs have more explanatory power for fund returns than turnover. Finally, trading costs are associated with investment objectives. However, variation in trading costs within investment objectives is greater than the variation across objectives.
Number of Pages in PDF File: 46
JEL Classification: G12
Date posted: March 19, 2000
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