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

Author

Listed:
  • Scott Bennett

    (Russell Investments, Sydney, NSW, Australia)

  • David R Gallagher

    (Centre for International Finance and Regulation, Sydney, NSW, Australia; Macquarie Graduate School of Management, North Ryde, NSW, Australia; Capital Markets CRC Limited, Sydney, NSW, Australia; Australian School of Business, The University of New South Wales, Sydney, NSW, Australia)

  • Graham Harman

    (Russell Investments, Sydney, NSW, Australia)

  • Geoffrey J Warren

    (Centre for International Finance and Regulation, Sydney, NSW, Australia; Research School of Finance, Actuarial Studies and Applied Statistics, The Australian National University, Canberra, ACT, Australia)

  • Lihui Xi

    (Russell Investments, Sydney, NSW, Australia; Macquarie Graduate School of Management, North Ryde, NSW, Australia; Capital Markets CRC Limited, Sydney, NSW, Australia)

Abstract

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 growth-oriented 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.

Suggested Citation

  • Scott Bennett & David R Gallagher & Graham Harman & Geoffrey J Warren & Lihui Xi, 2016. "Alpha generation in portfolio management: Long-run Australian equity fund evidence," Australian Journal of Management, Australian School of Business, vol. 41(1), pages 107-140, February.
    • Handle: RePEc:sae:ausman:v:41:y:2016:i:1:p:107-140
    DOI: 10.1177/0312896214539815
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    References listed on IDEAS

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    Cited by:

    1. Scott Bennett & David R. Gallagher & Graham Harman & Geoffrey J. Warren & Yuki Xi, 2018. "A new perspective on performance persistence: evidence using portfolio holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(1), pages 91-125, March.
    2. Cao, Ying & von Reibnitz, Anna & Warren, Geoffrey J., 2020. "Return dispersion and fund performance: Australia – The land of opportunity?," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    3. Zhe Chen & David R. Gallagher & Graham Harman & Geoffrey J. Warren & Lihui Xi, 2020. "How much does tax erode fund excess returns?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3407-3446, December.

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    More about this item

    Keywords

    Active management; alpha generation; performance evaluation; portfolio holdings; trades;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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