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

Authors

Scott Bennett, Russell Investments Sydney
David R. Gallagher, Capital Markets CRC Limited Sydney, University of New South Wales, Macquarie UniversityFollow
Graham Harman, Russell Investments Sydney
Geoffrey Warren, Australian National University, University of New South Wales
Lihui xi, Capital Markets CRC Limited Sydney, Macquarie University, Russell Investments Sydney

RIS ID

118853

Publication Details

Bennett, S., Gallagher, D. R., Harman, G., Warren, G. J. & Xi, L. (2016). Alpha generation in portfolio management: Long-run Australian equity fund evidence. Australian Journal of Management, 41 (1), 107-140.

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. 2015, SAGE Publications. All rights reserved.