Alpha Generation in Portfolio Management: Long-Run Australian Equity Fund Evidence

44 Pages Posted: 31 Aug 2012 Last revised: 2 Aug 2013

See all articles by Scott Bennett

Scott Bennett

Russell Investments

David R. Gallagher

Capital Markets CRC Limited

Graham Harman

Russell Investments

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Lihui XI

Macquarie Graduate School of Management; Capital Markets CRC Limited

Multiple version iconThere are 2 versions of this paper

Date Written: August 29, 2012

Abstract

This study provides the first long-run analysis of the skill of active Australian equity fund managers based on trades inferred from a market-wide database of monthly portfolio holdings over the period 1994-2009. In addition to confirming previous findings that skill exists amongst active Australian managers using a more comprehensive sample than previous studies, we also deepen the understanding of this skill in two ways. First, we sharpen the identification of skill by categorizing trades. We find that alpha is concentrated in trades that are more likely to involve informed trading rather than portfolio rebalancing. Second, we investigate skill across manager types. Alpha for growth-orientated managers is found to stem from selection skill, while that for value managers appears more related to characteristic exposure. We also find stronger evidence of skill amongst boutiques firms relative to more institutionalized managers.

Keywords: performance evaluation, active management, portfolio holdings, trades, alpha generation

JEL Classification: G23

Suggested Citation

Bennett, Scott and Gallagher, David R. and Harman, Graham and Warren, Geoffrey J. and XI, Lihui, Alpha Generation in Portfolio Management: Long-Run Australian Equity Fund Evidence (August 29, 2012). Available at SSRN: https://ssrn.com/abstract=2138149 or http://dx.doi.org/10.2139/ssrn.2138149

Scott Bennett

Russell Investments ( email )

King Street
Sydney, WA NSW 2000
Australia

David R. Gallagher (Contact Author)

Capital Markets CRC Limited ( email )

GPO Box 970
55 Harrington Street
Sydney, NSW 2001
Australia

Graham Harman

Russell Investments ( email )

909 A Street
Tacoma, WA 98402
United States

Geoffrey J. Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

Lihui XI

Macquarie Graduate School of Management ( email )

99 Talavera Road
Sydney, NSW 2109
Australia

Capital Markets CRC Limited ( email )

GPO Box 970
55 Harrington Street
Sydney, NSW 2001
Australia

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