Decomposing Tracking Error to Identify Mutual Fund Strategies

Javadekar, A and Buffa, A M (2020) Decomposing Tracking Error to Identify Mutual Fund Strategies. Working Paper. SSRN.

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Abstract

Decomposing mutual funds’ tracking error into its idiosyncratic and systematic components is informative about funds’ intention to implement picking and timing strategies. Accordingly, we define the fraction of a fund’s active return variance that is idiosyncratic as the fund’s degree of picking (dop), and document that pickers (high-dop funds) exhibit higher performance than timers (low-dop funds). We rule out that this outperformance is driven by different decreasing returns to scale across strategies, different levels of fund activeness, idiosyncratic risk, and fund styles. We also provide new evidence on the dynamics of fund strategies over business cycles and the fund life-cycle

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Javadekar, AUNSPECIFIED
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Mutual Funds, Stock Picking, Market Timing, Fund Performance,Bootstrapping
Subjects: Finance
Depositing User: Gurusrinivasan K
Date Deposited: 05 Jul 2020 05:32
Last Modified: 05 Jul 2020 05:33
URI: http://eprints.exchange.isb.edu/id/eprint/1377
Publisher URL: https://dx.doi.org/10.2139/ssrn.3597969
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