Holding Horizon: A New Measure of Active Investment Management

Chunhua Lan, Fabio Moneta and Russell Wermers ()

No 15-06, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: This paper proposes a new holding horizon (HH) measure of active management and examines the relation between horizon and manager skill. Our HH measure identifies, in the cross-section, funds with higher future long-term alphas, while reported turnover identifies, in the time-series, when a particular fund is likely to exhibit a higher short-run alpha. The superior long-term performance of long-horizon funds is due to their selection of stocks with strong long-run fundamentals. Moreover, stocks largely held by long-horizon funds outperform stocks largely held by short-horizon funds by 2.7% − 3.5% per year, adjusted for risk, over the following five-year period.

Keywords: mutual funds; performance evaluation; investment horizons; selection skills (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2018, Revised 2018
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1506

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