Does Trading by ETF and Mutual Fund Investors Hurt Performance? Evidence from Time- and Dollar-Weighted Returns

25 Pages Posted: 13 Jun 2018 Last revised: 25 Apr 2019

Date Written: April 5, 2018

Abstract

This paper analyzes the “return gap” between dollar-weighted returns that account for intermediate investor flows (internal rate of return) and buy-and-hold returns that funds typically report. Our sample constitutes all US-domiciled open-end mutual funds and exchange-traded funds (ETFs), and covers both fixed income and equity funds, as well as active and index styles of management. We find that return chasing behavior explains the cross-sectional pattern of the return gap. The high turnover of liquid ETFs does not lead to sub-par returns for investors in these funds.

Keywords: ETFs, Mutual Funds, Returns

JEL Classification: G10, G11

Suggested Citation

Madhavan, Ananth and Sobczyk, Aleksander, Does Trading by ETF and Mutual Fund Investors Hurt Performance? Evidence from Time- and Dollar-Weighted Returns (April 5, 2018). Available at SSRN: https://ssrn.com/abstract=3184639 or http://dx.doi.org/10.2139/ssrn.3184639

Ananth Madhavan (Contact Author)

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

Aleksander Sobczyk

BlackRock, Inc ( email )

400 Howard Street
San Francisco, CA 94105
United States

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