The Revealed Preferences of Mutual Fund Managers
51 Pages Posted: 7 Nov 2013 Last revised: 27 Oct 2018
Date Written: October 25, 2018
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: Suggested Citation