43 Pages Posted: 7 Sep 2016 Last revised: 21 Jan 2017
Date Written: November 16, 2016
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: 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