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Does Active Portfolio Management Create Value? An Evaluation of Fund Managers' Decisions

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  • Engström, Stefan

    ()
    (Dept. of Finance, Stockholm School of Economics)

Abstract

In this paper, I obtain new measures of the value of active portfolio management by forming replicating portfolios. These measures allow for a separate evaluation of fund managers' strategic and tactical decisions. I also obtain new evidence on the value of trading by decomposing it into long-term trading decisions, short-term trading decisions, and trading that is the result of regulatory restrictions. Overall, the evidence supports the value of active portfolio management and that the average fund manager creates value for its investors. Moreover, the results show a positive relation between the value created and trading activity.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 553.

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Length: 31 pages
Date of creation: 28 Jan 2004
Date of revision:
Handle: RePEc:hhs:hastef:0553

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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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Keywords: Mutual Funds; Portfolio Evaluation; Performance Attribution; Trading;

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  1. Kent Daniel & Sheridan Titman, 1996. "Evidence on the Characteristics of Cross Sectional Variation in Stock Returns," NBER Working Papers 5604, National Bureau of Economic Research, Inc.
  2. Grinblatt, Mark & Titman, Sheridan, 1993. "Performance Measurement without Benchmarks: An Examination of Mutual Fund Returns," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 66(1), pages 47-68, January.
  3. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 62(3), pages 393-416, July.
  4. Dahlquist, Magnus & Engström, Stefan & Söderlind, Paul, 2000. "Performance and Characteristics of Swedish Mutual Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 35(03), pages 409-423, September.
  5. Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 54(4), pages 513-33, October.
  6. Bruce N. Lehmann & David M. Modest, 1985. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," NBER Working Papers 1721, National Bureau of Economic Research, Inc.
  7. Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, American Finance Association, vol. 51(2), pages 425-61, June.
  8. Elton, Edwin J, et al, 1993. "Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(1), pages 1-22.
  9. Mark Grinblatt & Sheridan Titman, . "Portfolio Performance Evaluation: Old Issues and New Insights," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 22-88, Wharton School Rodney L. White Center for Financial Research.
  10. Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, American Finance Association, vol. 42(2), pages 233-65, June.
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