Decomposing Fund Activeness

Javadekar, A and Buffa, A M (2020) Decomposing Fund Activeness. Working Paper. SSRN.

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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

Item Type: Monograph (Working Paper)
Subjects: Finance
Date Deposited: 05 Jul 2020 05:32
Last Modified: 06 Apr 2022 05:46

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