Holding Horizon: A New Measure of Active Investment Management

American Finance Association Meetings 2015 Paper

Asian Finance Association (AsianFA) 2018 Conference

78 Pages Posted: 31 Oct 2014 Last revised: 3 Jun 2019

See all articles by Chunhua Lan

Chunhua Lan

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

Fabio Moneta

Queen's University - Smith School of Business

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Date Written: May 1, 2019

Abstract

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

Lan, Chunhua and Moneta, Fabio and Wermers, Russell R., Holding Horizon: A New Measure of Active Investment Management (May 1, 2019). American Finance Association Meetings 2015 Paper; Asian Finance Association (AsianFA) 2018 Conference. 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
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

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
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://www.rhsmith.umd.edu/finance/rwermers/

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