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The Value of Alpha Forecasts in Portfolio Construction

Author

Listed:
  • Kingsley Fong

    (Australian School of Business, The University of New South Wales, Sydney, NSW 2052.)

  • David R. Gallagher

    (McCombs School of Business, The University of Texas at Austin, TX 78712 USA and the Australian School of Business, The University of New South Wales. Sydney, NSW 2052.)

  • Adrian D. Lee

    (Australian School of Business, The University of New South Wales, Sydney, NSW 2052.)

Abstract

This study examines a portfolio strategy which selects stocks using the undisclosed monthly holdings of Australian active fund managers. When considering a large range of strategies incorporating fund portfolio holdings information, the top performing strategies are robust to data snooping and are both statistically significant and economically significant when incorporating transaction costs. These strategies are short term in nature, with statistically significant performance lasting up to nine months. When we account for look-ahead bias in the formation of a strategy, we find statistically significant alpha when following the best performing strategy holding 20 stocks or more in the previous month.

Suggested Citation

  • Kingsley Fong & David R. Gallagher & Adrian D. Lee, 2009. "The Value of Alpha Forecasts in Portfolio Construction," Australian Journal of Management, Australian School of Business, vol. 34(1), pages 97-121, June.
    • Handle: RePEc:sae:ausman:v:34:y:2009:i:1:p:97-121
    DOI: 10.1177/031289620903400106
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