Transaction-cost Expenditures and the Relative Performance of Mutual Funds

WFIC Working Paper No. 00-02

46 Pages Posted: 19 Mar 2000  

John Chalmers

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

Date Written: November 1999

Abstract

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.

JEL Classification: G12

Suggested Citation

Chalmers, John and Edelen, Roger M. and Kadlec, Gregory B., Transaction-cost Expenditures and the Relative Performance of Mutual Funds (November 1999). WFIC Working Paper No. 00-02. Available at SSRN: https://ssrn.com/abstract=218108 or http://dx.doi.org/10.2139/ssrn.218108

John Chalmers

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-3337 (Phone)

Roger M. Edelen (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

Gregory B. Kadlec

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-4316 (Phone)

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