Active Share and the Predictability of Portfolio Performance: Out-of-Sample Evidence from Separate Accounts

35 Pages Posted: 20 Apr 2020

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

Jon A. Fulkerson

University of Dayton

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: April 2020

Abstract

We use a novel sample of separate accounts to perform an out-of-sample test of the predictive power of active share (Cremers and Petajisto, 2009). While active share has limited predictive power unconditionally, it has significant power conditional on past performance. We find strong positive performance persistence only for high active share separate accounts: the portfolio of separate accounts with high active share and strong past performance subsequently outperforms by 1.48% per year. That result is even stronger when return dispersion is high and among separate accounts with a small cap style, a fundamental investment approach, or low cash holdings.

Keywords: Active share, separate accounts, mutual funds, alpha, out-of-sample, predictability

Suggested Citation

Cremers, K. J. Martijn and Fulkerson, Jon A. and Riley, Timothy Brandon, Active Share and the Predictability of Portfolio Performance: Out-of-Sample Evidence from Separate Accounts (April 2020). Available at SSRN: https://ssrn.com/abstract=3574654 or http://dx.doi.org/10.2139/ssrn.3574654

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jon A. Fulkerson

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

Timothy Brandon Riley (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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