Does Active Portfolio Management Create Value? An Evaluation of Fund Managers' Decisions

Abstract:     
In this paper, I obtain new measures of the value of active portfolio management by forming replicating portfolios. These measures allow for a separate evaluation of fund managers' strategic and tactical decisions. I also obtain new evidence on the value of trading by decomposing it into long-term trading decisions, short-term trading decisions, and trading that is the result of regulatory restrictions. Contrary to previous evidence, this paper supports the value of active portfolio management and finds a positive alpha measure for the average fund manager. Moreover, the results show a positive relation between the value created and trading activity.

Number of Pages in PDF File: 32

Keywords: Mutual Funds, Portfolio Evaluation, Performance Attribution, Trading

JEL Classification: G11, G12, G23

working papers series