Trading Frequency and Fund Performance

43 Pages Posted: 7 Sep 2016 Last revised: 21 Jan 2017

Jeffrey A. Busse

Emory University - Department of Finance

Lin Tong

Fordham University - Finance Area

Qing Tong

Singapore Management University - Lee Kong Chian School of Business

Zhe Zhang

Singapore Management University ; Singapore Management University - Lee Kong Chian School of Business

Date Written: November 16, 2016

Abstract

In sharp contrast to prior findings on the trading performance of individual investors, we find a strong positive relation between trade frequency and performance among a large sample of institutional investors. The positive performance of institutional traders that trade actively persists for at least a year, as they continue to trade actively and generate abnormal returns from their trades. Large funds, however, are unable to overcome the transaction costs associated with their larger trades, a finding that lends insight into the decreasing returns to scale that characterizes the money management industry. Active traders generate performance both by supplying liquidity and by trading aggressively on information.

Keywords: Trade Frequency, Fund Performance

JEL Classification: G1

Suggested Citation

Busse, Jeffrey A. and Tong, Lin and Tong, Qing and Zhang, Zhe, Trading Frequency and Fund Performance (November 16, 2016). Gabelli School of Business, Fordham University Research Paper No. 2834591. Available at SSRN: https://ssrn.com/abstract=2834591 or http://dx.doi.org/10.2139/ssrn.2834591

Jeffrey A. Busse

Emory University - Department of Finance ( email )

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

Lin Tong (Contact Author)

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

Qing Tong

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stanford Road
Singapore, 178899
Singapore

Zhe Zhang

Singapore Management University ( email )

Lee Kong Chian School of Business
50 Stamford Road
Singapore, 178899
Singapore

Singapore Management University - Lee Kong Chian School of Business ( email )

Lee Kong Chian School of Business
50 Stamford Road
Singapore, 178899
Singapore

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