Business Publications
Document Type
Article
Publication Date
2018
Volume
44
Issue
3
Journal
Managerial Finance
First Page
326
URL with Digital Object Identifier
https://doi.org/10.1108/MF-01-2017-0003
Last Page
356
Abstract
We propose a new measure of portfolio activity, the Modified Turnover, which represents the portion of the portfolio that the manager changes from one quarter to the next. Compared with the traditional turnover, our Modified Turnover measure relies on portfolio holdings and takes into account the effects of offsetting trades and fund flows on portfolio turnover. We find evidence that high Modified Turnover predicts lower performance. The comparison between the highest and lowest quintiles sorted based on Modified Turnover reveals a difference of -2.41% in the annual risk-adjusted return. Furthermore, high Modified Turnover predicts lower net flows. We also find that Modified Turnover relates positively to other activeness measures while volatility, flows, size, number of stocks, and the expense ratio are significant determinants of Modified Turnover. Overall, our results suggest that frequent churning of a portfolio is value-destroying for investors and signals a manager’s lack of skill.
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial 4.0 License
Citation of this paper:
Claudia Champagne, Aymen Karoui, Saurin Patel, (2018) "Portfolio turnover activity and mutual fund performance", Managerial Finance, Vol. 44 Issue: 3, pp.326-356, https://doi.org/10.1108/MF-01-2017-0003
Notes
This is an author-accepted version of an article published in Managerial Finance. The final published version can be found at https://doi.org/10.1108/MF-01-2017-0003