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Mutual Fund Trading Costs

90 Pages Posted: 7 Nov 2013 Last revised: 4 Apr 2017

Jeffrey A. Busse

Emory University - Department of Finance

Tarun Chordia

Emory University - Department of Finance

Lei Jiang

Tsinghua University

Yuehua Tang

University of Florida - Department of Finance

Date Written: April 3, 2017

Abstract

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

Busse, Jeffrey A. and Chordia, Tarun and Jiang, Lei and Tang, Yuehua, Mutual Fund Trading Costs (April 3, 2017). Available at SSRN: https://ssrn.com/abstract=2350583 or http://dx.doi.org/10.2139/ssrn.2350583

Jeffrey A. Busse

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-0160 (Phone)
404-727-5238 (Fax)

Tarun Chordia

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Lei Jiang

Tsinghua University ( email )

Beijing, 100084
China

Yuehua Tang (Contact Author)

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

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