A Panel Regression Approach to Holdings-Based Fund Performance Measures

Document Type

Conference Proceeding

Publication Date

12-1-2021

Abstract

Portfolio performance measures using holdings data are panel regressions. The returns of a fund's stocks are regressed on its lagged portfolio weights. Stock fixed effects isolate average performance from time-series predictive ability. Control variables condition for fund performance on the characteristics of the stocks held. The long-term performance of average holdings drives some of the classical measures, while predictive ability drives others. A “buy-and-hold drift, ” where portfolio weights increase over time in the higher alpha stocks, affects performance measures. Investor flows respond to average performance net of the buy-and-hold drift.

Publication Source (Journal or Book title)

Review of Asset Pricing Studies

First Page

695

Last Page

734

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