IDEAS home Printed from https://ideas.repec.org/a/bla/jfnres/v44y2021i2p431-463.html
   My bibliography  Save this article

Active share: A blessing and a curse

Author

Listed:
  • Brandon N. Cline
  • Collin Gilstrap

Abstract

We examine the implications of active mutual fund management across manager skill levels. We find that funds in the highest active share quintile outperform funds in the lowest active share quintile on a risk‐adjusted basis. When sorted on both active share and capture ratio, only managers with high skill and high active share experience positive future performance. Funds with high active share and low skill experience negative future risk‐adjusted returns, and these funds underperform all funds with low active share. We conclude that only funds with both high active management and high manager skill are preferable to index funds.

Suggested Citation

  • Brandon N. Cline & Collin Gilstrap, 2021. "Active share: A blessing and a curse," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(2), pages 431-463, June.
    • Handle: RePEc:bla:jfnres:v:44:y:2021:i:2:p:431-463
    DOI: 10.1111/jfir.12246
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jfir.12246
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jfir.12246?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Chen, Hsiu-Lang & Jegadeesh, Narasimhan & Wermers, Russ, 2000. "The Value of Active Mutual Fund Management: An Examination of the Stockholdings and Trades of Fund Managers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 343-368, September.
    2. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2008. "Unobserved Actions of Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2379-2416, November.
    3. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1703, August.
    4. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock‐Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1695, August.
    5. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, vol. 62(3), pages 393-416, July.
    6. Brown, Stephen J & Goetzmann, William N, 1995. "Performance Persistence," Journal of Finance, American Finance Association, vol. 50(2), pages 679-698, June.
    7. Guercio, Diane Del & Tkac, Paula A., 2008. "Star Power: The Effect of Monrningstar Ratings on Mutual Fund Flow," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(4), pages 907-936, December.
    8. K. J. Martijn Cremers & Antti Petajisto, 2009. "How Active Is Your Fund Manager? A New Measure That Predicts Performance," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3329-3365, September.
    9. Will J. Armstrong & Egemen Genc & Marno Verbeek, 2019. "Going for Gold: An Analysis of Morningstar Analyst Ratings," Management Science, INFORMS, vol. 67(5), pages 2310-2327, May.
    10. Martijn Cremers & Antti Petajisto, 2006. "How Active is Your Fund Manager? A New Measure That Predicts Performance," Yale School of Management Working Papers amz2370, Yale School of Management, revised 01 May 2009.
    11. Blake, Christopher R. & Morey, Matthew R., 2000. "Morningstar Ratings and Mutual Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 451-483, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wolfgang Bessler & Thomas Conlon & Diego Víctor de Mingo‐López & Juan Carlos Matallín‐Sáez, 2022. "Mutual fund performance and changes in factor exposure," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(1), pages 17-52, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Agarwal, Vikas & Gay, Gerald D. & Ling, Leng, 2013. "Window dressing in mutual funds," CFR Working Papers 11-07 [rev.2], University of Cologne, Centre for Financial Research (CFR).
    2. Livingston, Miles & Yao, Ping & Zhou, Lei, 2019. "The volatility of mutual fund performance," Journal of Economics and Business, Elsevier, vol. 104(C), pages 1-1.
    3. Verbeek, Marno & Wang, Yu, 2013. "Better than the original? The relative success of copycat funds," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3454-3471.
    4. Agarwal, Vikas & Gay, Gerald D. & Ling, Leng, 2014. "Window dressing in mutual funds," CFR Working Papers 11-07 [rev.3], University of Cologne, Centre for Financial Research (CFR).
    5. Otero-González, Luis & Durán-Santomil, Pablo, 2021. "Is quantitative and qualitative information relevant for choosing mutual funds?," Journal of Business Research, Elsevier, vol. 123(C), pages 476-488.
    6. Cao, Charles & Iliev, Peter & Velthuis, Raisa, 2017. "Style drift: Evidence from small-cap mutual funds," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 42-57.
    7. Bessler, Wolfgang & Blake, David & Lückoff, Peter & Tonks, Ian, 2010. "Why does mutual fund performance not persist? The impact and interaction of fund flows and manager changes," MPRA Paper 34185, University Library of Munich, Germany.
    8. Ekholm, Anders G., 2012. "Portfolio returns and manager activity: How to decompose tracking error into security selection and market timing," Journal of Empirical Finance, Elsevier, vol. 19(3), pages 349-358.
    9. Lan, Chunhua & Moneta, Fabio & Wermers, Russ, 2018. "Holding Horizon: A New Measure of Active Investment Management," CFR Working Papers 15-06, University of Cologne, Centre for Financial Research (CFR), revised 2018.
    10. Matallín-Sáez, Juan Carlos & Soler-Domínguez, Amparo & Tortosa-Ausina, Emili, 2016. "On the robustness of persistence in mutual fund performance," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 192-231.
    11. Agarwal, Vikas & Mullally, Kevin & Tang, Yuehua & Yang, Baozhong, 2013. "Mandatory portfolio disclosure, stock liquidity, and mutual fund performance," CFR Working Papers 13-04, University of Cologne, Centre for Financial Research (CFR).
    12. Ľuboš Pástor & Robert F. Stambaugh & Lucian A. Taylor, 2017. "Do Funds Make More When They Trade More?," Journal of Finance, American Finance Association, vol. 72(4), pages 1483-1528, August.
    13. Scott Bennett & David R Gallagher & Graham Harman & Geoffrey J Warren & Lihui Xi, 2016. "Alpha generation in portfolio management: Long-run Australian equity fund evidence," Australian Journal of Management, Australian School of Business, vol. 41(1), pages 107-140, February.
    14. Vikas Agarwal & Kevin A. Mullally & Yuehua Tang & Baozhong Yang, 2015. "Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 70(6), pages 2733-2776, December.
    15. Ferson, Wayne E., 2013. "Investment Performance: A Review and Synthesis," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 969-1010, Elsevier.
    16. Agarwal, Vikas & Gay, Gerald D. & Ling, Leng, 2012. "Performance inconsistency in mutual funds: An investigation of window-dressing behavior," CFR Working Papers 11-07 [rev.], University of Cologne, Centre for Financial Research (CFR).
    17. Gupta-Mukherjee, Swasti, 2013. "When active fund managers deviate from their peers: Implications for fund performance," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1286-1305.
    18. Hitesh Doshi & Redouane Elkamhi & Mikhail Simutin, 2015. "Managerial Activeness and Mutual Fund Performance," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 5(2), pages 156-184.
    19. Elton, Edwin J. & Gruber, Martin J., 2013. "Mutual Funds," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1011-1061, Elsevier.
    20. Bai, John Jianqiu & Tang, Yuehua & Wan, Chi & Yüksel, H. Zafer, 2022. "Fund manager skill in an era of globalization: Offshore concentration and fund performance," Journal of Financial Economics, Elsevier, vol. 145(2), pages 18-40.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfnres:v:44:y:2021:i:2:p:431-463. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/sfaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.