This study examines the effects of fund managers’ frequent tradings on equity mutual funds. Based on the findings, we suggest policy implications for mutual fund regulations. The empirical findings are as follows. First, frequent tradings cause poor performance of equity funds regardless of trading costs. Second, managers of underperforming funds buy and sell their portfolio holdings more frequently than those of outperforming funds. This implies that high trading cost is not the only source of the fund’s poor performance that exhibit frequent tradings. This phenomenon seems to be closely related to an agency problem between fund managers and investors. Finally, even when we control for the effects of fund size and cash flows, frequent tradings generate poorer performance, too. Noteworthy is that the negative impact of frequent tradings on fund return is strong for funds with heavy outflows. Our findings suggest that regulators need to strengthen the monitoring system of fund management.
Paek, M. and Ko, K. (2015), "Do Frequent Tradings Add Value? Profitability of Equity Fund Investors", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 23 No. 1, pp. 41-72. https://doi.org/10.1108/JDQS-01-2015-B0003
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