Investment manager skill in small-cap equities

Cong Chen, Carole Comerton-Forde, David Gallagher and Terry Walter ()
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Cong Chen: Macquarie Bank, Sydney
Carole Comerton-Forde: Discipline of Finance, Faculty of Economics & Business, The University of Sydney

Australian Journal of Management, 2010, vol. 35, issue 1, 23-49

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.

Keywords: active portfolio management; investment performance; small-cap equity funds; trading activity (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:35:y:2010:i:1:p:23-49

DOI: 10.1177/0312896209354216

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