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How Active is Your Fund Manager? A New Measure That Predicts PerformanceMartijn CremersUniversity of Notre Dame Antti PetajistoNew York University (NYU) - Department of Finance; Yale School of Management; BlackRock March 31, 2009 AFA 2007 Chicago Meetings Paper EFA 2007 Ljubljana Meetings Paper Yale ICF Working Paper No. 06-14 Abstract: We introduce a new measure of active portfolio management, Active Share, which represents the share of portfolio holdings that differ from the benchmark index holdings. We compute Active Share for domestic equity mutual funds from 1980 to 2003. We relate Active Share to fund characteristics such as size, expenses, and turnover in the cross-section, and we also examine its evolution over time. Active Share predicts fund performance: funds with the highest Active Share significantly outperform their benchmarks, both before and after expenses, and they exhibit strong performance persistence. Non-index funds with the lowest Active Share underperform their benchmarks.
Number of Pages in PDF File: 47 Keywords: Portfolio management, Active Share, tracking error, closet indexing JEL Classification: G10, G14, G20, G23 working papers seriesDate posted: March 21, 2006 ; Last revised: May 7, 2009Suggested CitationContact Information
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