What Drives Active Share? Active Stock Selection or Active Stock Weights

Journal of Investment Management (JOIM), 2020

Posted: 21 Mar 2020

See all articles by Aymen Karoui

Aymen Karoui

York University

Saurin Patel

Ivey Business School, Western University

Date Written: February 19, 2020

Abstract

Active Share is a popular measure of active management. However, it is not clear what drives Active Share. To improve our understanding, we decompose Active Share into Active Stock Selection (ASE) and Active Stock Weights (ASW). ASE captures portfolio weights in stocks outside the portfolio benchmark and correlates positively (88%) with Active Share. ASW captures portfolio weight deviations from market capitalization weights and correlates negatively (-55%). Furthermore, we find some evidence that ASE positively predicts performance, while ASW negatively predicts performance. Our results suggest that the benefits of Active Share stem from the selection decision rather than the weighting decision.

Keywords: Active Share, Active Stock Weights, Active Stock Selection, Mutual Fund Performance

JEL Classification: G11, G12, G14

Suggested Citation

Karoui, Aymen and Patel, Saurin, What Drives Active Share? Active Stock Selection or Active Stock Weights (February 19, 2020). Journal of Investment Management (JOIM), 2020, Available at SSRN: https://ssrn.com/abstract=3544445

Aymen Karoui (Contact Author)

York University ( email )

2275, avenue Bayview
Toronto, Ontario M4N 3M6
Canada

Saurin Patel

Ivey Business School, Western University ( email )

1255 Western Road
Room 2303
London, Ontario N6G 0N1
Canada
519-661-4195 (Phone)

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