Do Frequent Tradings Add Value? Profitability of Equity Fund Investors

Miyoun Paek (Pusan National University)
Kwangsoo Ko (Pusan National University)

Journal of Derivatives and Quantitative Studies: 선물연구

ISSN: 1229-988X

Article publication date: 28 February 2015

Abstract

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.

Keywords

Citation

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

Publisher

:

Emerald Publishing Limited

Copyright © 2015 Emerald Publishing Limited

License

This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode