Cross-Sectional Equity Correlations and the Value of Active Management
Document Type
Article
Publication Date
Summer 2020
Abstract
This article examines the cross-sectional correlations among equities and relates them to the performance of actively managed mutual funds. When the average correlation between equities’ returns is higher, there is less opportunity for active management to outperform. Consistent with this, the authors find that actively managed mutual funds generate lower abnormal returns when the average cross-sectional correlation is high. This result holds for both small and large funds, within various subperiods, and when controlling for fund fixed effects. The authors’ results have implications for investor portfolio allocation during periods such as the 2020 COVID-19 panic.
Publication Title
The Journal of Beta Investment Strategies
Repository Citation
Fisher, Gregg S.; McDonald, Michael B.; and Kozlowski, Steven E., "Cross-Sectional Equity Correlations and the Value of Active Management" (2020). Business Faculty Publications. 245.
https://digitalcommons.fairfield.edu/business-facultypubs/245
Published Citation
Fisher, Gregg S., Michael B. McDonald, and Steven E. Kozlowski. "Cross-Sectional Equity Correlations and the Value of Active Management." The Journal of Beta Investment Strategies 11, no. 1 (2020): 52-66. https://doi.org/10.3905/jii.2020.1.089
DOI
10.3905/jii.2020.1.089
Peer Reviewed
Comments
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