Do They Know What They Do? A Decomposition of Mutual Fund Performance using Transaction Data * Ran Xing January 31, 2018 Abstract This paper decomposes the performance of active mutual funds based on the invest- ment horizon of their holdings and trades, using both daily holdings and transaction data. Funds earn 0.73% per year from recent trades (in the last half year), and profit substantially from long-term holdings (1.25% per year). These results generally hold across all investment styles, with sales contributing as much as purchases. Trades made by growth, small-cap, momentum, or small funds contribute more in half a year and beyond one year but contribute negatively to performance from half a year to one year, indicating funds profit from their specializations. * This work was partially done while the author was a visiting scholar at The Wharton School and at the Stockholm School of Economics. The data used in this paper belongs to The Wharton School. I thank Joost Driessen (supervisor), Jules van Binsbergen, Magnus Dahlquist, Mathijs van Dijk, Xi Dong, Roger Edelen, Miguel Ferreira, Adam Farago, Bruno Gerard, Mariassunta Giannetti, Sebastian Gryglewicz, Jungsuk Han, Erik Hjalmarsson, Frank de Jong, Gregory Kadlec, Lingtian Kong, Melissa Lin, Mancy Luo, Mike Mao, Massimo Massa, Stefan Obernberger, Hongxun Ruan, Jame Russell, Esad Smajlbegovic, Patrick Tuijp, Patrick Verwijmeren, George Wang, Bas Werker, Chengdong Yin, Marcin Zamojski, Xiaoyan Zhang, Xin Zhang, and seminar participants at Tilburg University, Erasmus University Rotterdam, Lancaster University and University of Gothenburg for helpful comments and discussions, and I also thank Yuehua Tang for sharing the methodology to identify mutual funds in ANcerno database. Xing is from the Finance Group of the Erasmus School of Economics in Erasmus University Rotterdam. E-mail: xing@ese.eur.nl. 1