Holding Horizon: A New Measure of Active Investment Management

The Journal of Financial and Quantitative Analysis

American Finance Association Meetings 2015 Paper

American Finance Association Meetings 2015 Paper

118 Pages Posted: 31 Oct 2014 Last revised: 30 Nov 2022

See all articles by Chunhua Lan

Chunhua Lan

University of New Brunswick - Fredericton; Financial Research Network (FIRN)

Fabio Moneta

Telfer School of Management, University of Ottawa

Russ Wermers

University of Maryland - Robert H. Smith School of Business; European Corporate Governance Institute (ECGI)

Date Written: November 6, 2022

Abstract

This paper introduces a new holding horizon measure of active management and examines its relation to future risk-adjusted fund performance (alpha). Our measure reveals a wide cross-sectional dispersion in mutual fund investment horizons, and shows that long-horizon funds exhibit positive future long-term alphas by holding stocks with superior long-term fundamentals. Further, stocks largely held by long-horizon funds outperform stocks largely held by short-horizon funds by more than 3% annually, adjusted for risk, over the following five-year period. We also find a clientele effect: to reduce liquidity costs, long-horizon funds attract more long-term investors through share classes that carry load fees.

Keywords: mutual funds, performance evaluation, investment horizons, selection skills

JEL Classification: G11, G23

Suggested Citation

Lan, Chunhua and Moneta, Fabio and Wermers, Russell R., Holding Horizon: A New Measure of Active Investment Management (November 6, 2022). The Journal of Financial and Quantitative Analysis , American Finance Association Meetings 2015 Paper, American Finance Association Meetings 2015 Paper, Available at SSRN: https://ssrn.com/abstract=2517215 or http://dx.doi.org/10.2139/ssrn.2517215

Chunhua Lan (Contact Author)

University of New Brunswick - Fredericton ( email )

Bailey Drive
P.O. Box 4400
Fredericton NB E3B 5A3, New Brunswick E3B 5A3
Canada

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Fabio Moneta

Telfer School of Management, University of Ottawa ( email )

136 Jean-Jacques Lussier Street
Ottawa, Ontario K1N 6N5
Canada

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://terpconnect.umd.edu/~wermers/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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