Fund Returns and Trading Expenses: Evidence on the Value of Active Fund Management

The relation between mutual fund returns and trading expenses provides a powerful test of the value of active management, however, the empirical evidence on this relation is mixed. It argues that the inconsistent evidence stems from the use of turnover as a proxy for trading expenses. Turnover captures the frequency of trade but it fails to account for the cost per trade ? which varies considerably across assets. It estimates funds? trading expenses directly using portfolio holdings and transaction data and find that fund managers fail to recover the cost of transacting.

Provided by: Charles H. Lundquist College of Business, University of Oregon Topic: Software Date Added: Oct 2001 Format: PDF

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