Alpha Generation in Portfolio Management: Long-Run Australian Equity Fund Evidence

Posted: 29 Jan 2016

See all articles by Scott Bennett

Scott Bennett

Russell Investments

David R. Gallagher

Rozetta Institute

Graham Harman

Russell Investments

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Lihui XI

Macquarie Graduate School of Management; Capital Markets CRC Limited

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2016

Abstract

This study provides the first long-run analysis of the skill of active Australian equity fund managers based on trades inferred from a market-wide database of monthly portfolio holdings over the period 1994–2009. In addition to confirming previous findings that skill exists among active Australian managers using a more comprehensive sample, we also deepen the understanding of this skill in two ways. First, we sharpen the identification of skill by categorizing trades. We find that alpha is concentrated in trades that are more likely to involve informed trading rather than portfolio rebalancing. Second, we investigate skill across manager types. Alpha for growth-oriented managers is found to stem from selection skill, while that for value managers appears more related to characteristic exposure. We also find stronger evidence of skill among boutique firms relative to more institutionalized managers.

Keywords: active management, alpha generation, performance evaluation, portfolio holdings, trades

Suggested Citation

Bennett, Scott and Gallagher, David R. and Harman, Graham and Warren, Geoffrey J. and XI, Lihui, Alpha Generation in Portfolio Management: Long-Run Australian Equity Fund Evidence (February 1, 2016). Australian Journal of Management, Vol. 41, No. 1, 2016. Available at SSRN: https://ssrn.com/abstract=2724573

Scott Bennett (Contact Author)

Russell Investments ( email )

King Street
Sydney, WA NSW 2000
Australia

David R. Gallagher

Rozetta Institute ( email )

Sydney

Graham Harman

Russell Investments ( email )

909 A Street
Tacoma, WA 98402
United States

Geoffrey J. Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

Lihui XI

Macquarie Graduate School of Management ( email )

99 Talavera Road
Sydney, NSW 2109
Australia

Capital Markets CRC Limited ( email )

GPO Box 970
55 Harrington Street
Sydney, NSW 2001
Australia

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