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A Panel Regression Approach to Holdings-based Fund Performance Measures

Author

Listed:
  • Wayne E. Ferson
  • Junbo L. Wang

Abstract

Portfolio performance measures using holdings data are panel regressions. The returns of a fund’s stocks are regressed on its lagged portfolio weights. Stock fixed effects isolate average performance from time-series predictive ability. Control variables condition fund performance on the characteristics of the stocks held. The long term performance of average holdings drives some of the classical measures, while predictive ability drives others. A “buy-and-hold drift,” where portfolio weights increase over time in the higher alpha stocks, affects performance measures. Investor flows respond to average performance net of the buy-and-hold drift.

Suggested Citation

  • Wayne E. Ferson & Junbo L. Wang, 2020. "A Panel Regression Approach to Holdings-based Fund Performance Measures," NBER Working Papers 28238, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28238
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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