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Does Active Portfolio Management Create Value? An Evaluation of Fund Managers' Decisions

32 Pages Posted: 4 Mar 2002  

Stefan Engstrom

Stockholm School of Economics, Department of Finance; Agenta

Date Written: January 28, 2004

Abstract

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.

Keywords: Mutual Funds, Portfolio Evaluation, Performance Attribution, Trading

JEL Classification: G11, G12, G23

Suggested Citation

Engstrom, Stefan, Does Active Portfolio Management Create Value? An Evaluation of Fund Managers' Decisions (January 28, 2004). Available at SSRN: https://ssrn.com/abstract=302117 or http://dx.doi.org/10.2139/ssrn.302117

Stefan Engstrom (Contact Author)

Stockholm School of Economics, Department of Finance ( email )

P.O. Box 6501
Stockholm 113 83
Sweden
+46 8 402 16 82 (Phone)

Agenta ( email )

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