Investment Manager Skill in Small-Cap Equities

35 Pages Posted: 23 Aug 2005 Last revised: 4 Sep 2008

See all articles by Cong Chen

Cong Chen

University of New South Wales

Carole Comerton-Forde

UNSW Business School; Financial Research Network (FIRN)

Terry S. Walter

University of Sydney; University of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN)

David R. Gallagher

Rozetta Institute

Date Written: August 1, 2005

Abstract

Using a representative sample of monthly portfolio holdings and daily trades, this study presents unique evidence of significant stock selection skill amongst institutional small-cap equity managers on a risk-adjusted basis. Of particular importance is the magnitude of the performance generated by fund managers in our sample, with cumulative abnormal returns (CARs) over a one-month period for holdings-based and transactions-based metrics of 59.7 and 64.1 basis points, respectively. The evidence reveals that small-cap equity managers possess superior stock selection ability, from both a statistical and economic perspective. Our results are robust to the deduction of transaction costs. Our research provides important non-U.S. evidence concerning the value of active management, in a market segment which exhibits both lower liquidity and lower analyst coverage.

Keywords: Small-cap equity funds, trading activity, performance

JEL Classification: G23

Suggested Citation

Chen, Cong and Comerton-Forde, Carole and Walter, Terry Stirling and Gallagher, David R., Investment Manager Skill in Small-Cap Equities (August 1, 2005). Available at SSRN: https://ssrn.com/abstract=785564 or http://dx.doi.org/10.2139/ssrn.785564

Cong Chen

University of New South Wales ( email )

Kensington
High St
Sydney NSW 2052
Australia

Carole Comerton-Forde

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

University of Technology, Sydney - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
+61 2 9514 3860 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=5373

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

David R. Gallagher (Contact Author)

Rozetta Institute ( email )

Sydney

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