Algorithmic Trading and Mutual Fund Performance

Joey Yang; Jerry Parwada; Kingsley Fong

Algorithmic Trading and Mutual Fund Performance

Joey Yang, Jerry Parwada, Kingsley Fong

Accounting and Finance

Research output: Contribution to conference › Conference presentation/ephemera › peer-review

Abstract

We examine the effects of algorithmic trading (AT) on the US mutual fund industry and find that funds holding stocks with higher AT intensity have lower holdings return and higher interim trading profits (return gap). This effect survives controls of effective spread and execution shortfall. Our results suggest that AT’s effect on funds is via the trading channel rather than funds’ stock selection abilities. AT’s positive effects of enhanced market quality on fund performance dominates its negative influence of predatory trading. Using exchange automation as an instrument, we find evidence suggesting the effect of AT on return gap is causal.

Original language	English
Number of pages	42
Publication status	Unpublished - 28 Jun 2018

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title = "Algorithmic Trading and Mutual Fund Performance",

abstract = "We examine the effects of algorithmic trading (AT) on the US mutual fund industry and find that funds holding stocks with higher AT intensity have lower holdings return and higher interim trading profits (return gap). This effect survives controls of effective spread and execution shortfall. Our results suggest that AT{\textquoteright}s effect on funds is via the trading channel rather than funds{\textquoteright} stock selection abilities. AT{\textquoteright}s positive effects of enhanced market quality on fund performance dominates its negative influence of predatory trading. Using exchange automation as an instrument, we find evidence suggesting the effect of AT on return gap is causal.",

keywords = "Algorithmic Trading, Investor return, Portfolio Return, Return Gap, Implementation Shortfall",

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TY - CONF

T1 - Algorithmic Trading and Mutual Fund Performance

AU - Yang, Joey

AU - Parwada, Jerry

AU - Fong, Kingsley

PY - 2018/6/28

Y1 - 2018/6/28

N2 - We examine the effects of algorithmic trading (AT) on the US mutual fund industry and find that funds holding stocks with higher AT intensity have lower holdings return and higher interim trading profits (return gap). This effect survives controls of effective spread and execution shortfall. Our results suggest that AT’s effect on funds is via the trading channel rather than funds’ stock selection abilities. AT’s positive effects of enhanced market quality on fund performance dominates its negative influence of predatory trading. Using exchange automation as an instrument, we find evidence suggesting the effect of AT on return gap is causal.

AB - We examine the effects of algorithmic trading (AT) on the US mutual fund industry and find that funds holding stocks with higher AT intensity have lower holdings return and higher interim trading profits (return gap). This effect survives controls of effective spread and execution shortfall. Our results suggest that AT’s effect on funds is via the trading channel rather than funds’ stock selection abilities. AT’s positive effects of enhanced market quality on fund performance dominates its negative influence of predatory trading. Using exchange automation as an instrument, we find evidence suggesting the effect of AT on return gap is causal.

KW - Algorithmic Trading

KW - Investor return

KW - Portfolio Return

KW - Return Gap

KW - Implementation Shortfall

M3 - Conference presentation/ephemera

ER -

Algorithmic Trading and Mutual Fund Performance

Abstract

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