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.

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

Creative Commons License

Creative Commons Attribution-Noncommercial 4.0 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

Find in your library

Included in

Business Commons

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.