Mutual fund activity and performance in the Finnish equity market: Evidence from active share measure

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School of Economics | Master's thesis
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PURPOSE OF THE STUDY The purpose of this thesis is to examine the activity of Finnish equity mutual funds and test whether portfolio manager activity contributes positively to mutual fund performance. This transforms into examining the following: i) The development of active management among Finnish equity funds and the determinants of activity, ii) Performance differences between the most and least active funds and the market index, iii) Whether mutual fund activity is driven by past intra-year performance, which would be evidence of mutual fund tournaments among Finnish equity funds. The main aspect separating this study from the plentiful research conducted on the area of mutual fund performance is the unique measure of activity, Active Share, which was developed by Cremers and Petäjistö in 2009. DATA The data set in this study consists of all actively managed Finnish equity mutual funds existent during the years 1999-2008. The data covers also discontinued funds and is free of survivorship bias. Data for the calculation of Active Shares consists of monthly mutual fund and benchmark index holdings. In addition, the data includes several fund-specific characteristics and returns for mutual funds and benchmark indexes. RESULTS This thesis presents evidence that the more active Finnish equity funds have outperformed less active funds during 1999 – 2008. This result holds for simple return and for risk-adjusted returns measured by Sharpe?s Ratios and Jensen?s Alphas. The most active fund quartile also outperforms the Finnish market index, net of fees and on risk-adjusted basis. Large commercial bank managed funds with high number of shareholders are the least active. Small, non-commercial bank managed funds with one named portfolio manager and higher management fees are the most active. The thesis fails to document evidence of mutual fund tournaments among the Finnish equity funds.
active portfolio management, Active Share, mutual fund tournaments, efficient markets
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