Does Active Share Explain Taiwanese Mutual Fund Performance?
Date Issued
2015
Date
2015
Author(s)
Chang, China-Fa
Abstract
This paper use Taiwan domestic equity mutual fund data from 2000 to the end of 2014 as sample. Referring to Cremers and Petajisto (2009), I proposed a set of selection criteria for the Taiwanese equity mutual fund to select benchmark index. I next used the benchmark selected to calculate active share and tracking error, and regards them as the proxies for active management degree to examine how active management affects the fund performance. The empirical results show a significantly positive relationship between active share and both the future and contemporary fund performance. This result is consistent with Cremers and Petajisto (2009), and inconsistent with Taiwan domestic past research. Tracking error is significantly negative correlated with future fund performance. It means that stock selections can add value to performance, and systematic factor bets destroyed value. Therefore, we can combine these two dimensions of active management to forecast fund performance. Finally, I used active share and tracking error to sort domestic all-equity mutual funds into five categories. I found that after deducting expenses from performance, the overall performance of the fund fell behind the broader market. It is consistent with previous studies. However, I found that “stock pickers” with high active share and low tracking error have been able to significant outperform its benchmark, and its performance is significant higher than “closet indexers” with passive management style. It pointed out that although the average actively managed mutual fund has underperformed its benchmark index, some active management style still matters considerably for performance. It proves the value of actively managed mutual fund.
Subjects
Mutual funds
Active Share
Tracking Error
Active Management
Fund Performance forecast
Fund Management Strategy
Fund Management Style
Behavior of Fund Managers
Type
thesis
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