Download This PaperA Horizon Based Decomposition of Mutual Fund Value Added Using Transactions
86 Pages Posted: 18 Nov 2019 Last revised: 12 Sep 2022
Date Written: November 7, 2019
Abstract
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 FOMC and earnings announcement days. Holdings of low-turnover funds add value only over longer horizons.
Keywords: mutual funds, investment horizon, transaction data, daily holdings, horizon-specific skill
JEL Classification: G23
Suggested Citation: Suggested Citation
Jules H. Van Binsbergen
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
Ran Xing (Contact Author)
City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )
17 Lexington Avenue
New York, NY 10010
United States
