Do more active funds still earn higher performance? Evidence from Active Share over time

We find that the relationship between activeness and future fund performance significantly weakens after the passage of regulation fair disclosure (FD). The ability of Active Share to predict four‐factor alpha is more than five times smaller after FD. More active funds embed a higher degree of private information into prices of traded stocks, and the extent to which these funds affect price informativeness diminishes in the post‐FD era. Stocks traded by more active funds exhibit a higher degree of information asymmetry, and this relationship also weakens after FD. Our findings suggest that one of the channels through which more active funds generated a higher alpha before FD was through the selective disclosure of information.