This thesis investigates key issues concerning how active equity fund managers add value: measuring alpha (Chapter 3), generating alpha (Chapters 4, 5 and 6) and transaction cost minimisation (Chapter 7). Chapter 3 proposes important methodological adjustments to the widely adopted benchmarking methodology of Daniel, Grinblatt, Titman and Wermers (1997). Applying this modified benchmark to a sample of active funds and simulated passive portfolios that mimic fund manager style characteristics, statistically lower tracking error is documented, compared with using the standard methodology. These findings suggest that improved specifications of characteristic benchmarks represent better methods in accurately quantifying fund manager skill. Chapter 4 examines a portfolio strategy which selects stocks using the undisclosed monthly holdings of Australian active funds. When considering a large range of strategies incorporating portfolio holdings information, the top performing strategies are robust to data-snooping and are economically and statistically significant when incorporating transaction costs. Accounting for look-ahead bias in the formation of a strategy, statistically significant alpha of at least 6.88 percent per year is found when following the best performing strategy holding 20 stocks or more in the previous month. Chapter 5 examines the relation of active equity fund managers location proximity to a stock??s corporate headquarter using portfolio holdings data. Contrary to much international research, this study reveals evidence inconsistent with a location advantage for Melbourne and Sydney-based funds. Chapter 6 examines retail investor trading on the Australian Stock Exchange. The performance of retail investors is highly heterogeneous: discount (non-discount) retail brokerage investors lose -0.59 (-0.05) percent intraday and experience negative (positive) returns over the subsequent year. These findings are inconsistent with retail investors exerting price pressure or providing liquidity to institutions. Chapter 7 examines whether equity fund managers use multiple brokers in a trade package in order to lower their price impact and brokerage costs. Using the daily trades of funds, multiple broker trades are not found to have lower costs compared to a single broker, even when controlling for the informativeness of the trade package and potential endogeneity. These findings suggest that fund managers do not lower their costs when using multiple brokers.
| Identifer | oai:union.ndltd.org:ADTP/238731 |
| Date | January 2009 |
| Creators | Lee, Adrian David, Banking & Finance, Australian School of Business, UNSW |
| Publisher | Publisher:University of New South Wales. Banking & Finance |
| Source Sets | Australiasian Digital Theses Program |
| Language | English |
| Detected Language | English |
| Rights | http://unsworks.unsw.edu.au/copyright, http://unsworks.unsw.edu.au/copyright |
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