The Relationship between Turnover Rate and Performance for Taiwan’s Funds
Date Issued
2008
Date
2008
Author(s)
Tsai, Tsung-Yu
Abstract
This paper studies the relationship between the turnover rate and the performance. The lower the turnover rate is, the more likely the fund manager adopts the buy-and-hold strategy. On the other hand, the higher the turnover rate is, the more frequently the fund manager changes the securities of the fund. If the fund manager actively manages the fund by effectively exploiting research resources or successfully timing the market, not only transaction costs may be offset by the gains from the holdings, but also the fund performs better. However, if the high turnover rate is due to the manager’s continuous corrections of past investment mistakes, transaction costs such as fees and taxes will corrode the fund’s profits. Different from past literatures which adopt cross-sectional analyses or view the turnover rate as just one of the independent variables employed, this paper uses uni-input transfer function model to analyze the relationship between the turnover rate and the performance. The results suggest that although the turnover rates can be used to explain the performances for some specific funds, the relationship between the turnover rate and the performance is not significant on the whole.
Subjects
Domestic fund
Turnover rate
Time series
Transfer function model
Test of independence
Type
thesis
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