A Horizon Based Decomposition of Mutual Fund Performance Using Transaction Data

49 Pages Posted: 18 Nov 2019

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Hongxun Ruan

Guanghua School of Management, Peking University

Ran Xing

Aarhus University; Danish Finance Institute

Date Written: November 7, 2019

Abstract

This paper uses transaction-level data to decompose active mutual fund performance based on the past length of funds' holdings. We find that the majority of value added is related to holdings that have been in the portfolio for more than one year. Our decomposition is markedly different depending on fund size: on average trades of large (small) funds start to add value only after 7 months (10 days), arguably because of the large price impact that large funds have. Only small funds profit from short-term anomalies suggesting that funds actively adapt their strategies to the price impact of their trades and specialize in different investment horizons. Finally, the dispersion of fund turnover is large and persistent. Trades and holdings of high-turnover funds add a substantial amount of value within a year but destroy value beyond a year, whereas trades and holdings of low-turnover funds mainly add value beyond a year.

Keywords: mutual funds, investment horizon, transaction data, daily holdings, skill

JEL Classification: G23

Suggested Citation

van Binsbergen, Jules H. and Ruan, Hongxun and Xing, Ran, A Horizon Based Decomposition of Mutual Fund Performance Using Transaction Data (November 7, 2019). Available at SSRN: https://ssrn.com/abstract=3478745 or http://dx.doi.org/10.2139/ssrn.3478745

Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

Hongxun Ruan

Guanghua School of Management, Peking University ( email )

Peking University
Beijing, Beijing 100871
China

Ran Xing (Contact Author)

Aarhus University ( email )

Fuglesangs Alle 4
Aarus, 8210
Denmark

Danish Finance Institute ( email )

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