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Heterogeneous turnover-performance relations

Author

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  • Shen, Ke
  • Tong, Lin
  • Yao, Tong

Abstract

We document the heterogeneous effects of turnover on mutual fund performance, which help explain the weak cross-sectional turnover-performance relations reported in existing studies. For funds skilled in exploiting short-term investment opportunities, there is a positive empirical relation between turnover and performance. For unskilled funds, the relation turns negative. As a result, performance persistence is stronger among funds with higher turnover. Further, we find that the heterogeneous effects of turnover on performance are not driven by liquidity premium or trade execution skills, but rather due to substantial dispersion in short-term stock selection information.

Suggested Citation

  • Shen, Ke & Tong, Lin & Yao, Tong, 2021. "Heterogeneous turnover-performance relations," Journal of Banking & Finance, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:jbfina:v:124:y:2021:i:c:s0378426621000121
    DOI: 10.1016/j.jbankfin.2021.106054
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    Cited by:

    1. Victor DeMiguel & Javier Gil-Bazo & Francisco J. Nogales & André A. P. Santos, 2021. "Can Machine Learning Help to Select Portfolios of Mutual Funds?," Working Papers 1245, Barcelona School of Economics.

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