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The Effect of Trading Activity and Holdings Market Capitalization on Portfolio Performance

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  • Pei Lin Deng

Abstract

This paper augments a growing body of empirical literature on the turnover-return relationship of stock portfolios. From quarterly data over the recent decade, mutual funds that focus on smaller cap stocks are found to pay a greater performance penalty for active trading compared to those that focus on larger cap stocks. On average, managers in every fund focus type make investment decisions that benefit gross returns. However, detriment from excessive trading arises due to transaction costs. They are especially magnified for mutual funds that focus on smaller cap stocks. Findings herein also support previous studies that show fund managers execute lower-quality trades with tenure. The presented effect modification of trading activity by holdings focus type and manager tenure may be leveraged to refine portfolio investment strategies.

Suggested Citation

  • Pei Lin Deng, 2018. "The Effect of Trading Activity and Holdings Market Capitalization on Portfolio Performance," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(8), pages 1-18, August.
    • Handle: RePEc:ibn:ijefaa:v:10:y:2018:i:8:p:18
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    References listed on IDEAS

    as
    1. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    2. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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