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Capacity and factor timing effects in active portfoliomanagement

Author

Listed:
  • 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.

Suggested Citation

  • Ciccotello, Conrad & Greene, Jason & Ling, Leng & Rakowski, David, 2011. "Capacity and factor timing effects in active portfoliomanagement," Journal of Financial Markets, Elsevier, vol. 14(2), pages 277-300, May.
  • Handle: RePEc:eee:finmar:v:14:y:2011:i:2:p:277-300
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    References listed on IDEAS

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    Cited by:

    1. Jank, Stephan, 2012. "Mutual fund flows, expected returns, and the real economy," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3060-3070.

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