Active Share and Mutual Fund Performance. Antti Petajisto Antti Petajisto is a researcher and portfolio manager at quantPORT, a systematic multi-strategy. A mutual fund combines active positions with a passive position in the benchmark index, which can make the Active Share and Mutual Fund Performance. The data file shows the Active Share of U.S. equity mutual funds, computed over the original factors in performance evaluation applications (see the paper for .
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However, the file also reports the benchmark index that produces the lowest Active Share. This paper resolves the puzzle by proposing that stock prices are instead set by two separate classes of investors.
The deviations are larger in funds holding international or illiquid securities where net asset values are most difficult to determine in real time. The following articles are merged in Scholar. Selection of an optimal index rule for an index fund A Petajisto. New citations to this author. We relate Active Share to fund characteristics such as size, expenses, and turnover in the cross-section, and we also examine its evolution over time.
We investigate the trade-offs from the perspective of a fund investor choosing between a mutual fund and a hedge fund, examining the impact of leverage, volatility, Active Share, nominal fees, and alpha for a realistic range of parameter estimates. Active Share, tracking error, closet indexing. Earnings quality, value, international, accruals. The index premium and its hidden cost for index funds A Petajisto Journal of Empirical Finance 18 2, Global return premiums on earnings quality, value, and size M Kozlov, A Petajisto.
How active is your fund manager? Fama and French introduced stock market factors to control for the size effect and the value effect. Non-index funds with the lowest Active Share underperform their benchmarks. We conclude that Active Share matters for fund performance: An earlier and more comprehensive version, including results on endogeneously arising institutions and optimal institutional structure pdf file.
Third, we introduce a new concept that we label the index turnover cost, which represents a hidden cost borne by index funds and the indexes themselves due to the index premium.
We explore alternative ways to construct these factors and propose alternative models constructed from common and easily tradable benchmark indices.
Journal of Financial and Quantitative Analysis 44 5, Benchmarking, factor models, portfolio management. Active Share predicts fund performance: My profile My library Metrics Alerts. July published version working paper. Active management also predicts fund performance: We show why and how to adjust the expense ratio for the level of Active Share and the cost of investing in the benchmark.
We conclude by discussing potential adjustments to mutual fund disclosures that could help investors identify closet index funds. Here are the rules for using the data:.
Representative agent models are inconsistent with existing empirical evidence for steep demand curves for individual stocks. Verified email at sloan. Home Academic Research Data. You should think of the above data files as mostly an extension of the data used by Cremers and Petajistoadding another six years and anrti a few methodological tweaks.
Who Has Been Buying U. We introduce a new pefrormance of active portfolio management, Active Share, which represents the share of portfolio holdings that differ from the benchmark index holdings.
Active trading strategies exploiting such inefficiencies produce substantial abnormal returns before transaction costs, providing further proof of short-term mean-reversion in ETF prices. This result holds both in the overall sample as well as in the more recent time period since Should Benchmark Indices Have Alpha? We build a model to investigate the behavior of the index turnover cost and the portfolio performance of a mechanical index fund under a market-cap rule, an exogenous random rule, and a deterministic rule.
Leggio, Ryan, and John Coumarianos: We argue that persistent petajistl indexing implicates a number of legal issues, including possible liability for fund advisors under the Securities Act and the Investment Company Act. Review of Financial Studies, 22 9: After a number of requests by both academics and practitioners for the data on Active Share for mutual funds, I am now making the historical data available to everyone.
January published version working paper. We find that the rational anticipation of future index composition reflected in prices today eliminates any first-order differences in index fund performance across the three index rules.
Closet Indexing,” November 15, pdf file. This paper empirically investigates the index premium and its implications from to We examine the relation between indexing and active management in the mutual fund industry worldwide. Journal of Financial Marketsrevise and resubmit. Actife contrast, closet indexers or funds focusing on factor bets have lost to their benchmarks after fees.
Petajisto / Data
Why do demand curves for stocks slope down? October published version working paper Journal of Financial and Quantitative Analysis, 44 5: Empirical tests pdf file and a more elaborate model pdf file. Related research report that focuses on market-on-close transactions in ETFs pdf file. We find that a simple strategy that is long stocks with high earnings quality and short stocks with low earnings quality produces a higher Sharpe ratio than the overall market or similar strategies betting on value or small stocks.
Boucher, Christopher, and Bertrand Maillet: