Portfolio returns and manager activity: How to decompose tracking error into security selection and market timing

Anders G. Ekholm

Journal of Empirical Finance, 2012, vol. 19, issue 3, 349-358

Abstract: We develop a new method for detecting portfolio manager activity. Our method relies exclusively on portfolio returns and, consequently, avoids the pitfalls associated with disclosed portfolio holdings. We investigate the link between activity and performance of actively managed U.S. equity funds from 2000 to 2007 and document robust evidence that future performance is positively related to past stock picking and negatively associated with past market timing. Finally, we find that portfolio manager activity is highly persistent over time, which supports the conclusion that stock picking increases performance while market timing decreases performance.

Keywords: Security selection; Stock picking; Market timing; Performance; Tracking error (search for similar items in EconPapers)
JEL-codes: G10 G11 G20 G23 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:19:y:2012:i:3:p:349-358

DOI: 10.1016/j.jempfin.2012.02.002

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