Investment Manager Skill in Small-Cap Equities

Chen, Cong; Comerton‐Forde, Carole; Walter, Terry S.; Gallagher, David R.

doi:10.2139/ssrn.785564

Cited by 18 publications

(40 citation statements)

References 45 publications

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“…This is consistent with previous research indicating that active managers have greater skill trading smaller stocks in the Australian market (e.g. see Chen et al, 2010).…”

Section: Market Capitalisationsupporting

confidence: 93%

Does portfolio emulation outperform its target funds?

Chen

Foster

Gallagher

et al. 2012

Australian Journal of Management

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An emulation fund is designed to reduce trading activity, thereby lowering costs, for a multi-manager fund. It does this by delaying, and potentially combining, trading decisions from each employed fund manager to eliminate offsetting trades (e.g. one manager may buy a stock for her fund while another manager sells the same stock at approximately the same time for his fund). While lowering transaction costs is a key benefit of an emulation strategy, there has been little research that compares the reduction in transaction costs with the opportunity costs of delaying trade. Using reported equity trades for a large Australian pension fund we simulate the consequences of an emulation strategy. We find that simulated emulation trades underperform those trades made by the employed (or target) fund over our sample period. That is, the opportunity cost of delayed trading significantly outweighs transaction cost reductions. Overall, we do not find strong evidence to support emulation from a cost-benefit perspective before management fees and taxes. JEL classification: G23

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“…This is consistent with previous research indicating that active managers have greater skill trading smaller stocks in the Australian market (e.g. see Chen et al, 2010).…”

Section: Market Capitalisationsupporting

confidence: 93%

Does portfolio emulation outperform its target funds?

Chen

Foster

Gallagher

et al. 2012

Australian Journal of Management

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“…The implied transaction costs approach is tested empirically based on the S&P/ASX 200 index call options data covering the period from 2 April 2001 to 31 December 2010. The implied transaction costs rate estimate is judged to be reasonable based on the bid-ask spread estimate based on Roll (1984), the actual stock market bid-ask spread estimated by Cummings and Frino (2011), the actual transaction costs for large stocks on the ASX documented by Aitken and Frino (1996), Comerton-Forde et al (2005) and Chen et al (2010), and the brokerage service fees charged by brokers in Australia documented by Fong et al (2010).…”

Section: Discussionmentioning

confidence: 99%

“…Second, we compare the implied transaction costs estimate with the actual round-trip transaction costs estimates for large stocks on the ASX reported in previous studies, including Aitken and Frino (1996) and Comerton-Forde et al (2005). These actual transaction costs are also recently documented in Chen et al (2010). We contacted a few brokerage firms in order to obtain indicative round-trip costs, but we did not receive any response.…”

Section: Introductionmentioning

confidence: 99%

Implied transaction costs by Leland option pricing model: A new approach and empirical evidence

Abdullah²

2012

J Deriv Hedge Funds

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“…Elton et al (2011) suggest that employing quarterly holdings data misses 20% of the trades found in monthly data, and employing semi-annual data misses 34% of the trades. The benefit of using more frequent portfolio holdings data has been reinforced by Gallagher and Looi (2006) and Chen et al (2010). Indeed, Puckett and Yan (2010) reveal that daily trade data versus quarterly inferred trades from holdings biases inferences of skill downward by between 0.20% and 0.26% per annum.…”

Section: Monthly Versus Quarterly Net Tradesmentioning

confidence: 99%

“…Evidence of skill has also been found to exist amongst Australian managers (e.g. Chen et al, 2010;Gallagher and Looi, 2006;Pinnuck, 2003).…”

Section: Introductionmentioning

confidence: 96%

Alpha generation in portfolio management: Long-run Australian equity fund evidence

Bennett¹,

Gallagher

Harman³

et al. 2015

Australian Journal of Management

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This study provides the first long-run analysis of the skill of active Australian equity fund managers based on trades inferred from a market-wide database of monthly portfolio holdings over the period 1994-2009. In addition to confirming previous findings that skill exists amongst active Australian managers using a more comprehensive sample, we also deepen the understanding of this skill in two ways. First, we sharpen the identification of skill by categorizing trades. We find that alpha is concentrated in trades that are more likely to involve informed trading rather than portfolio rebalancing. Second, we investigate skill across manager types. Alpha for growthoriented managers is found to stem from selection skill, while that for value managers appears more related to characteristic exposure. We also find stronger evidence of skill amongst boutique firms relative to more institutionalized managers.

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Investment Manager Skill in Small-Cap Equities

Cited by 18 publications

References 45 publications

Does portfolio emulation outperform its target funds?

Does portfolio emulation outperform its target funds?

Implied transaction costs by Leland option pricing model: A new approach and empirical evidence

Alpha generation in portfolio management: Long-run Australian equity fund evidence

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