Scale and skill in active management

Pástor, Ľuboš; Stambaugh, Robert F.; Taylor, Lucian A.

doi:10.1016/j.jfineco.2014.11.008

Cited by 461 publications

(153 citation statements)

References 60 publications

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“…The control variable results are as expected in that higher expenses and higher turnover are negatively related to future performance. Larger funds and older funds are also related to lower future performance, which is in line with findings by Berk and Green (2004) and Pastor, Stambaugh, and Taylor (2015). Current alpha is positively related to future performance.…”

Section: Predicting Performance With Activitysupporting

confidence: 87%

“…Thus, employing gross returns instead of net returns can provide additional insights. Moreover, gross return is more informative about skill, as it represents the performance created by the manager's activity as opposed to the return paid to the investors (e.g., Fama & French, 2010;Pastor et al, 2015).…”

Section: Economic Value Of Predicting Performance Based On Activitymentioning

confidence: 99%

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Does style-shifting activity predict performance? Evidence from equity mutual funds

Herrmann¹,

Rohleder

Scholz

2016

The Quarterly Review of Economics and Finance

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Available online xxx JEL classification: G11 G20 G23 a b s t r a c tThis study introduces an innovative approach to measuring the "style-shifting activity" (SSA) of mutual funds using daily returns. Applying our new measure to a comprehensive sample of 2631 active US equity mutual funds, we show (i) that SSA predicts future performance, especially for current outperformers, and (ii) that SSA adds new information previously not captured by alternative return-based activity measures such as tracking error or R-squared. Comparing the three measures, we show that SSA captures activity very selectively, which makes it a stable and reliable predictor of future performance. Tracking error and R-squared, however, seem to additionally capture some unobserved fund characteristics, as the direction and power of their predictions depend heavily on the consideration of time-and fund-fixed effects. Moreover, investment strategies based on past SSA and past performance earn up to 2.4% (3.6%) p.a. risk-adjusted net (gross) returns which is economically and statistically significant.

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Section: Predicting Performance With Activitysupporting

confidence: 87%

Section: Economic Value Of Predicting Performance Based On Activitymentioning

confidence: 99%

Does style-shifting activity predict performance? Evidence from equity mutual funds

Herrmann¹,

Rohleder

Scholz

2016

The Quarterly Review of Economics and Finance

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“…The result that a small number of ethical and traditional funds have a statistically significant selectivity and timing measure in either model implies that the funds do exhibit some degree of specialization in one or the other forecasting skill. These results complement those ofBaker et al (2010),Fama and French (2010),Berk and Binsbergen (2015), andPastor et al (2015) who provide evidence for the existence of…”

supporting

confidence: 88%

The investment performance, attributes, and investment behavior of ethical equity mutual funds in the US: an empirical investigation

Rahman

Lee

Xiao

2016

Rev Quant Finan Acc

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This paper examines the investment performance of US ethical equity mutual funds relative to the market and their traditional counterparts using a survivorship-bias-free database. We detect selectivity and market timing performance of fund managers using two models. First, we use Treynor and Mazuy's (Harv Bus Rev 44:131-136, 1966) model to determine these performances from a quadratic regression of fund returns on market returns. Second, we use a comprehensive and integrated model derived by Bhattacharya and Pfleiderer (A note on performance evaluation. Technical Report 714, Stanford, California, Stanford University, Graduate School of Business, 1983) and Lee and Rahman (J Bus 63:261-278, 1990) to simultaneously capture stock selection and market timing skill of fund managers. This model extracts timing skill from the relationship between managers' forecast and realized market return. In addition, the R 2 approach developed by Amihud and Goyenko (Rev Financ Stud 26:667-694, 2013) for evaluating selectivity is also used in this paper. Our empirical results indicate that ethical funds perform no worse than their traditional counterparts, although ethical and traditional funds do not outperform the market. We find some evidence of superior security selection and/or market timing skill among a very small number of ethical and traditional funds. It appears that matching traditional funds have slightly more abnormal (superior as well as inferior) performance than ethical funds in our sample.

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“…Having said this, it is advantageous to assess the performance of the respective funds using a single benchmark for the sake of an unambiguous comparison. We did not account for different fund sizes within the sample that might give rise to economies or diseconomies of scale and impact on other fund characteristics (Berk & Green, 2004;Brown & Wu, 2016;Pástor et al, 2015). In addition, we abstracted from transaction costs and due to the criteria specified in the sampling process, the selected funds may not be representative of the entire population.…”

Section: Resultsmentioning

confidence: 99%

The Risk-Adjusted Performance of Alternative Investment Funds and UCITS: A Comparative Analysis

Camilleri¹,

Farrugia²

2018

IJEF

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This study evaluates the performance of a selection of Alternative Investment Funds (AIFs), and Undertakings for Collective Investment in Transferable Securities Funds (UCITS) which followed a global geographic focus strategy during the period 2010-2016. These two fund structures are governed by different regulatory frameworks, which have evolved and re-shaped over the years. Various yardsticks are employed to evaluate the risk-adjusted performance of the sampled funds, and Monte-Carlo simulations are used to gauge the possible out-of-sample returns. Most of the sampled funds underperformed the benchmark index in terms of their Sharpe and Treynor ratios. Whilst UCITS registered a better overall performance, AIFs outperformed UCITS towards the end of the sample period. This suggests that investors should not assume that one fund structure is inherently superior to the other, since the relative performance may vary over time.

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Scale and skill in active management

Cited by 461 publications

References 60 publications

Does style-shifting activity predict performance? Evidence from equity mutual funds

Does style-shifting activity predict performance? Evidence from equity mutual funds

The investment performance, attributes, and investment behavior of ethical equity mutual funds in the US: an empirical investigation

The Risk-Adjusted Performance of Alternative Investment Funds and UCITS: A Comparative Analysis

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