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Investment manager skill in small-cap equities

Journal Article


Abstract


  • Using a representative sample of monthly portfolio holdings and daily trades, this study presents unique evidence of significant stock selection skill amongst institutional small-cap equity managers on a risk-adjusted basis. Of particular importance is the magnitude of the performance generated by fund managers in our sample. Aggregate four-factor and five-factor alphas are 68 and 59.6 basis points per month before management expenses and tax, respectively. The evidence from holdings and transaction-based metrics of performance also reveals that small-cap equity managers possess superior stock selection ability, from both a statistical and economic perspective. Our results are robust to the deduction of transaction costs. Our research provides important non-U.S. evidence concerning the value of active management, in a market segment which exhibits both lower liquidity and lower analyst coverage.

Authors


  •   Chen, Cong (external author)
  •   Comerton-Forde, Carole (external author)
  •   Gallagher, David R. (external author)
  •   Walter, Terry S.

Publication Date


  • 2010

Citation


  • Chen, C., Comerton-Forde, C., Gallagher, D. R. & Walter, T. S. (2010). Investment manager skill in small-cap equities. Australian Journal of Management, 35 (1), 23-49.

Scopus Eid


  • 2-s2.0-77952576903

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1194

Number Of Pages


  • 26

Start Page


  • 23

End Page


  • 49

Volume


  • 35

Issue


  • 1

Abstract


  • Using a representative sample of monthly portfolio holdings and daily trades, this study presents unique evidence of significant stock selection skill amongst institutional small-cap equity managers on a risk-adjusted basis. Of particular importance is the magnitude of the performance generated by fund managers in our sample. Aggregate four-factor and five-factor alphas are 68 and 59.6 basis points per month before management expenses and tax, respectively. The evidence from holdings and transaction-based metrics of performance also reveals that small-cap equity managers possess superior stock selection ability, from both a statistical and economic perspective. Our results are robust to the deduction of transaction costs. Our research provides important non-U.S. evidence concerning the value of active management, in a market segment which exhibits both lower liquidity and lower analyst coverage.

Authors


  •   Chen, Cong (external author)
  •   Comerton-Forde, Carole (external author)
  •   Gallagher, David R. (external author)
  •   Walter, Terry S.

Publication Date


  • 2010

Citation


  • Chen, C., Comerton-Forde, C., Gallagher, D. R. & Walter, T. S. (2010). Investment manager skill in small-cap equities. Australian Journal of Management, 35 (1), 23-49.

Scopus Eid


  • 2-s2.0-77952576903

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1194

Number Of Pages


  • 26

Start Page


  • 23

End Page


  • 49

Volume


  • 35

Issue


  • 1