IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v98y2025ics1059056025000371.html
   My bibliography  Save this article

The components of tracking error, interim trading and mutual fund performance

Author

Listed:
  • Matallín-Sáez, Juan Carlos
  • de Mingo-López, Diego Víctor

Abstract

This study examines active management due to interim trading in mutual funds. We propose a novel and standardized measure to estimate active management within a quarter. This measure is based on the fund tracking error in relation to the behaviour of a synthetic portfolio emulating its initial weight structure. In implementing a factor pricing model, this measure is decomposed into two components related to fund intra-quarterly changes in systematic and idiosyncratic risks. Results show that funds experience low levels of active management within a quarter, mainly arising from the differences in fund and synthetic portfolio residuals. In addition, interim trading erodes fund performance in the short term. Nonetheless, a positive effect on traditional alphas arises in the mid-term, linked to strategic asset allocation decisions. The suggested measure and the reported evidence are of interest to help stakeholders to understand and evaluate the impact of unobservable managerial decisions.

Suggested Citation

  • Matallín-Sáez, Juan Carlos & de Mingo-López, Diego Víctor, 2025. "The components of tracking error, interim trading and mutual fund performance," International Review of Economics & Finance, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025000371
    DOI: 10.1016/j.iref.2025.103874
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056025000371
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2025.103874?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Mutual fund; Performance; Idiosyncratic risk; Active management; Tracking error;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025000371. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.