Holding Horizon: A New Measure of Active Investment Management
American Finance Association Meetings 2015 Paper
92 Pages Posted: 31 Oct 2014 Last revised: 17 May 2021
Date Written: May 1, 2021
This paper introduces a new holding horizon measure of active management and examines its relation with fund performance. Our measure reveals a wide cross-sectional dispersion in mutual fund investment horizons. We find that long-horizon funds have positive future long-term alphas and hold stocks with superior long-term fundamentals. Stocks largely held by long-horizon funds outperform stocks largely held by short-horizon funds by 3.2% per year, adjusted for risk, over the following five-year period. We also find an interesting clientele effect: to reduce liquidity costs, long-horizon funds attract more long-term investors by offering a greater level of share classes that carry load fees.
Keywords: mutual funds, performance evaluation, investment horizons, selection skills
JEL Classification: G11, G23
Suggested Citation: Suggested Citation