Bridge over ocean
1 May 1994 Financial Analysts Journal Volume 50, Issue 3

Mutual Fund Trading Activity and Investor Utility

  1. Walton R.L. Taylor
  2. James A. Yoder
Can trading activity by managers of high-risk mutual funds make a positive contribution to investor utility? Stochastic dominance is used to compare the returns of high-turnover funds with those of low-turnover funds. This approach avoids the limitations of a mean/variance or regression approach and minimizes problems of survivorship bias. The results show that high-turnover groups dominate low-turnover groups, or at least are equally attractive to risk-averse investors. Active portfolio management can enhance investor utility, even when the costs of obtaining and exploiting costly information are taken into account.
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