Active Investment Manager Portfolios and Preferences for Stock Characteristics

SIRCA Working Paper No. 2002007M

22 Pages Posted: 15 May 2003

See all articles by Simone Brands

Simone Brands

UNSW Australia Business School, School of Banking and Finance

Adrian Looi

UNSW Australia Business School, School of Banking and Finance

David R. Gallagher

Rozetta Institute

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Abstract

This study investigates the stock characteristic preferences of institutional Australian equity managers. In aggregate we find that active managers exhibit preferences for stocks exhibiting high price variance, large market capitalisation, low transaction costs, value-oriented characteristics, greater levels of analyst coverage, and lower variability in analyst earnings forecasts. We observe stronger preferences for higher volatility, value stocks, and wider analyst coverage among smaller stocks. We also find smaller investment managers prefer securities with higher market capitalisation and analyst coverage (including low variation in the forecasts of these analysts). We also document that industry effects play an important role in portfolio construction.

JEL Classification: G12, G14, G23

Suggested Citation

Brands, Simone and Looi, Adrian and Gallagher, David R., Active Investment Manager Portfolios and Preferences for Stock Characteristics. SIRCA Working Paper No. 2002007M, Available at SSRN: https://ssrn.com/abstract=368802 or http://dx.doi.org/10.2139/ssrn.368802

Simone Brands

UNSW Australia Business School, School of Banking and Finance

Sydney, NSW 2052
Australia

Adrian Looi (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

David R. Gallagher

Rozetta Institute ( email )

Sydney

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