Abstract
We decompose mutual fund value added by the length of funds' holdings using transaction-level data. Our decomposition is motivated by a model featuring horizon-specific investment ideas and the differential scalability of those ideas given price impact costs. Fund turnover correlates negatively with the horizon over which value is added, and correlates positively with price impact costs, before and after controlling for fund size. As predicted, holdings of high-turnover funds add a substantial amount of value in the first two weeks, whereas holdings of low-turnover funds only add value over longer horizons.
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