The Revealed Preferences of Mutual Fund Managers

51 Pages Posted: 7 Nov 2013 Last revised: 27 Oct 2018

See all articles by Jeffrey A. Busse

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: October 25, 2018

Abstract

This paper discerns two preferences of mutual fund managers. First, managers of larger funds trade less frequently and hold bigger stocks to actively avoid higher trading costs. Using a novel dataset of actual mutual fund trades, we find that larger funds realize lower percentage transaction costs than smaller funds. Gross returns of larger funds are lower than those of smaller funds due to the characteristics of their holdings. Our results highlight the tradeoffs between trading costs, portfolio characteristics, and fund performance. Second, fund managers emphasize net shareholder returns over the four-factor alpha, consistent with investor preferences.

Keywords: Mutual funds, trading costs, portfolio characteristics, fund size, fund performance

JEL Classification: G2, G20, G23

Suggested Citation

Busse, Jeffrey A. and Chordia, Tarun and Jiang, Lei and Tang, Yuehua, The Revealed Preferences of Mutual Fund Managers (October 25, 2018). 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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