Do Active Funds Do Better in What They Trade?

85 Pages Posted: 29 Nov 2023 Last revised: 7 Dec 2023

See all articles by Marco Sammon

Marco Sammon

Harvard Business School

John J. Shim

University of Notre Dame - Mendoza College of Business

Date Written: December 7, 2023

Abstract

We develop two new measures to quantify active fund decisions at the position level. Our measures are designed to separate flow-based passive scaling from active rebalancing decisions. We find that additive active rebalancing -- both for existing and new positions -- predicts higher stock-level alpha over the following quarter. We show our results are not driven by mechanical price pressure, and provide evidence that funds may trade on forecasts for future earnings. Finally, we aggregate our stock-level measure to the portfolio level and show that actively adding to positions translates to outsized returns for fund investors.

Keywords: Mutual Funds, Active Management

JEL Classification: G11, G23

Suggested Citation

Sammon, Marco and Shim, John J., Do Active Funds Do Better in What They Trade? (December 7, 2023). Available at SSRN: https://ssrn.com/abstract=4624934 or http://dx.doi.org/10.2139/ssrn.4624934

Marco Sammon (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

John J. Shim

University of Notre Dame - Mendoza College of Business ( email )

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

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