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Capacity and factor timing effects in active portfoliomanagement

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Author Info

  • Ciccotello, Conrad
  • Greene, Jason
  • Ling, Leng
  • Rakowski, David

Abstract

Capacity constraints limit the profits of some investment strategies, while other strategies are more scalable. We develop a dollar-weighted return measure that parses the factor timing by investors and a strategy's capacity constraints. We find that actively managed funds exhibit significant capacity and timing effects, while index funds display only timing effects. A portfolio's liquidity, investment style, and distribution policy are important in explaining variation in capacity constraints. The analysis demonstrates that capacity and timing effects are important in analyzing portfolio manager skill and the cost of active investing.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Markets.

Volume (Year): 14 (2011)
Issue (Month): 2 (May)
Pages: 277-300

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Handle: RePEc:eee:finmar:v:14:y:2011:i:2:p:277-300

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Web page: http://www.elsevier.com/locate/finmar

Related research

Keywords: Active portfolio management Fund flows Timing Capacity Dollar-weighting;

References

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Cited by:
  1. Jank, Stephan, 2011. "Mutual fund flows, expected returns, and the real economy," CFR Working Papers 11-04, University of Cologne, Centre for Financial Research (CFR).

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