In this study, I investigate the relationship between active trading of Taiwan domestic mutual funds, as measured by buy (sell) turnover rates and fund performances under bull and bear market states. The endogeneity issue has been taken into consideration and therefore, the study employs 2SLS regression model using manager tenure as an instrumental variable. The results suggest no evidence between buy (sell) turnover rates and fund performances, implying that turnover rate is not a good determinant in explaining the effect of fund performance for Taiwan funds. The results also show the negative and significant relationship between bear market and fund performance. Thus, Taiwan funds tend to perform better during the bull market, regardless of the level of fund active trading.

In this study, I investigate the relationship between active trading of Taiwan domestic mutual funds, as measured by buy (sell) turnover rates and fund performances under bull and bear market states. The endogeneity issue has been taken into consideration and therefore, the study employs 2SLS regression model using manager tenure as an instrumental variable. The results suggest no evidence between buy (sell) turnover rates and fund performances, implying that turnover rate is not a good determinant in explaining the effect of fund performance for Taiwan funds. The results also show the negative and significant relationship between bear market and fund performance. Thus, Taiwan funds tend to perform better during the bull market, regardless of the level of fund active trading.

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