Work

A Horizon‐Based Decomposition of Mutual Fund Value Added Using Transactions

Year: 2024

Type: article

Abstract: ABSTRACT We decompose mutual fund value added by the length of funds' holdings using transaction‐level data. We motivate our decomposition with a model featuring horizon‐specific investment ideas, where short‐term ideas are less scalable because the associated trades cannot be spread over time. Fund turnover correlates negatively with the horizon over which value is added and positively with price impact costs. As predicted, holdings of high‐turnover funds add a substantial amount of value in the first two weeks, of which more than 80% is earned on Federal Open Market Committee (FOMC) and earnings announcement days. Holdings of low‐turnover funds add value only over longer horizons.

Source: The Journal of Finance

DOI: 10.1111/jofi.13331

Authors: JULES VAN BINSBERGEN, JUNGSUK HAN, HONGXUN RUAN, RAN XING

Institutions: Stockholm University, Aarhus University, Seoul National University, Peking University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funder: Seoul National University

OpenAlex ID: W4393935488

FWCI: 5.36

Cites: 66

Cited by: 24

Related to: 10