Measure characteristic selectivity by using portfolio holdings data

Louis Boone, Jorge Denials


Considering the monthly updating of characteristic benchmarks and to ensure neutrality to the Standard & Poor's index. Applying this benchmark to a representative sample of active equity funds and simulated passive portfolios that mimic fund manager-style characteristics, we find statistically different and lower tracking error compared with using the standard characteristic benchmark methodology. We also find evidence that the modified benchmark statistically infers an alpha closer to zero compared with the standard benchmark methodology. Our findings suggest that improved specifications of characteristic benchmarks represent better methods in quantifying fund manager skill.

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ISSN (Paper)2222-1697 ISSN (Online)2222-2847

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