Holding Horizon: A New Measure of Active Investment Management
American Finance Association Meetings 2015 Paper
77 Pages Posted: 31 Oct 2014 Last revised: 26 Jun 2019
Date Written: June 1, 2019
This paper proposes a new holding horizon (HH) measure of active management and examines the relation between horizon and manager skill. Our HH measure identifies, in the cross-section, funds with higher future long-term alphas, while reported turnover identifies, in the time-series, when a particular fund is likely to exhibit a higher short-run alpha. The superior long-term performance of long-horizon funds is due to their selection of stocks with strong long-run fundamentals. Moreover, stocks largely held by long-horizon funds outperform stocks largely held by short-horizon funds by 2.7%-3.5%$ per year, adjusted for risk, over the following five-year period.
Keywords: mutual funds, performance evaluation, investment horizons, selection skills
JEL Classification: G11, G23
Suggested Citation: Suggested Citation