This paper measures changes in mutual fund trading costs following two reductions in the tick size of U.S. equity
markets: the switch from eighths to sixteenths and the subsequent switch to decimals. We estimate trading costs by
comparing a mutual fundís daily returns to the daily returns of a synthetic benchmark portfolio that matches the
fundís holdings but has zero trading costs by construction. We find that the average change in trading costs of
actively managed funds was positive following both reductions in tick size, with a larger and statistically
significant increase following decimalization. In contrast, index fund trading costs were unaffected.