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Using a large proprietary database of institutional trades, this paper examines the interim (intraquarter) trading skills of institutional investors. We find strong evidence that institutional investors earn significant abnormal returns on their trades within the trading quarter and that interim trading performance is persistent. After transactions costs, our estimates suggest that interim trading skills contribute between 20 and 26 basis points per year to the average fund's abnormal performance. Our findings also indicate that any trading skills documented by previous studies that use quarterly data are biased downwards because of their inability to account for interim trades.

We contribute to the literature on the performance of financial intermediaries. Using a unique dataset of institutional investors" equity transactions, we document that institutional trading desks can sustain relative performance over adjacent periods. We investigate several possible explanations for trading cost persistence including broker selection, investment style, and commissions, and identify a set of trading decisions that are associated with performance. Our findings support the presence of skilled traders who can create positive (investment) alpha through their trading strategies. The substantial and persistent differences in institutional trading costs are large enough to significantly contribute to mutual fund performance persistence. We find that past broker performance can reliably predict future performance suggesting that broker selection based on past performance is an important dimension of money manager"s fiduciary obligation. AbstractWe contribute to the literature on the performance of financial intermediaries. Using a unique dataset of institutional investors" equity transactions, we document that institutional trading desks can sustain relative performance over adjacent periods. We investigate several possible explanations for trading cost persistence including broker selection, investment style, and commissions, and identify a set of trading decisions that are associated with performance. Our findings support the presence of skilled traders who can create positive (investment) alpha through their trading strategies. The substantial and persistent differences in institutional trading costs are large enough to significantly contribute to mutual fund performance persistence. We find that past broker performance can reliably predict future performance suggesting that broker selection based on past performance is an important dimension of money manager"s fiduciary obligation.

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