Does Active Portfolio Management Create Value? An Evaluation of Fund Managers' Decisions
Stockholm School of Economics, Department of Finance; Agenta
January 28, 2004
In this paper, I obtain new measures of the value of active portfolio management by forming replicating portfolios. These measures allow for a separate evaluation of fund managers' strategic and tactical decisions. I also obtain new evidence on the value of trading by decomposing it into long-term trading decisions, short-term trading decisions, and trading that is the result of regulatory restrictions. Contrary to previous evidence, this paper supports the value of active portfolio management and finds a positive alpha measure for the average fund manager. Moreover, the results show a positive relation between the value created and trading activity.
Number of Pages in PDF File: 32
Keywords: Mutual Funds, Portfolio Evaluation, Performance Attribution, Trading
JEL Classification: G11, G12, G23
Date posted: March 4, 2002