The performance of active mutual fund management: Portfolio construction bases on the stockholdings and trades of Taiwan equity funds construction bases on the stockholdings and trades of Taiwan equity funds

Abstract

Following the work of Chen, Jegadeesh, and Wermers (2000), this study examines Taiwan equity fund managers' ability by measuring the performance of both holding and trading portfolios, which are constructed according to the stockholding records collected at each end of month during 1998 to 2003. The results show that fund managers have stock-picking ability. This can be first observed by significant returns generated from the aggregated holding portfolios of the entire equity funds. This result can be further confirmed by the data that stocks bought by funds have significantly higher returns than stocks they sold. In addition, both high- and low-turnover fund managers have selection ability, Mutual funds, as a group, prefer stocks with characteristics that are very similar to the average properties of the market index, such as large size and growth firms. Furthermore, shifting style is a strategy employed by poorly performing funds to increase their returns. However, past winning funds with more inconsistent style tend to hurt their stock portfolios' future returns instead.