An Empirical Study On The Relation Between Funds' Active Management And Performance

In this paper, in addition to Tracking Error, I introduce a new measure we label Industry Level Active Share (ILAS) to quantify mutual funds'active management. I study the relation between the active management and the performance of 51 actively managed China's closed end funds from 2001 to 2006.Our results indicate that, on average, more actively managed funds (i.e. more concentrated funds) perform better after controlling for risk and style differences using various performance measures. This finding suggests that managers who hold concentrated portfolios are more likely to have information advantages or superior skill. Particularly, ILAS describes the share of portfolio holdings that differ from the portfolio's benchmark index at the beginning of the quarter, so maybe it could be consider as a measure to predict performance.