Cross-Sectional Equity Correlations and the Value of Active Management

Document Type


Publication Date

Summer 2020


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.


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Publication Title

The Journal of Beta Investment Strategies

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



Peer Reviewed