Managerial Activeness and Mutual Fund Performance

Review of Asset Pricing Studies, Forthcoming

44 Pages Posted: 20 Apr 2014 Last revised: 9 May 2015

See all articles by Hitesh Doshi

Hitesh Doshi

University of Houston - C.T. Bauer College of Business

Redouane Elkamhi

University of Toronto - Rotman School of Management

Mikhail Simutin

University of Toronto - Rotman School of Management

Date Written: May 7, 2015

Abstract

A closet indexer is more likely to meet a value-weighted investment benchmark by value-weighting the portfolio. Following this intuition, we introduce a simple measure of active management, the absolute difference between the value weights and the actual weights held by a fund, averaged across its holdings. This proxy captures managerial skill: Active funds outperform passive ones by 2.5% annually. Compared to known measures of skill, our proxy robustly predicts fund flows, asset growth, factor-adjusted performance, and value added. Its predictive ability is orthogonal to that of other measures and is robust to controlling for volatility timing, past performance, and style.

Keywords: Mutual fund performance, Portfolio management, closet indexing

JEL Classification: G10, G12, G14, G20, G23

Suggested Citation

Doshi, Hitesh and Elkamhi, Redouane and Simutin, Mikhail, Managerial Activeness and Mutual Fund Performance (May 7, 2015). Review of Asset Pricing Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2426630 or http://dx.doi.org/10.2139/ssrn.2426630

Hitesh Doshi

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

Redouane Elkamhi

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Mikhail Simutin (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/simutin

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