Mutual Fund Trading Costs
90 Pages Posted: 7 Nov 2013 Last revised: 4 Apr 2017
Date Written: April 3, 2017
Trading costs of actively-managed U.S. equity mutual funds average 0.75% per year and are persistent and negatively related to fund performance. We provide algorithms for determining mutual fund trading costs using trade-, stock-, and fund-level characteristics. Larger trades in smaller stocks and low priced stocks incur higher transaction costs. Growth-oriented funds have higher trading costs than value-oriented funds as do funds with higher turnover. Larger funds have lower trading costs than smaller funds despite their larger trade sizes because they endogenously hold and trade bigger, more liquid stocks and trade less frequently.
Keywords: Mutual funds, transaction costs, trading cost algorithm, liquidity, fund size, fund performance
JEL Classification: G2, G20, G23
Suggested Citation: Suggested Citation