Capacity and factor timing effects in active portfolio management

Authors

Conrad Ciccotello, Georgia State University
Jason Greene, Southern Illinois University at Carbondale
Leng Ling, Georgia College & State University
David Rakowski, Southern Illinois University at Carbondale

Document Type

Article

Publication Date

5-1-2011

Publication Title

Journal of Financial Markets

Abstract

Capacity constraints limit the profits of some investment strategies, while other strategies are more scalable. We develop a dollar-weighted return measure that parses the factor timing by investors and a strategy's capacity constraints. We find that actively managed funds exhibit significant capacity and timing effects, while index funds display only timing effects. A portfolio's liquidity, investment style, and distribution policy are important in explaining variation in capacity constraints. The analysis demonstrates that capacity and timing effects are important in analyzing portfolio manager skill and the cost of active investing.

Volume Number

14

Issue Number

2

First Page

277

Comments

© 2010 Elsevier B.V.

Last Page

300

Recommended Citation

Ciccotello, D., Greene, J., Ling, L. & Rakowski, D. (2011). Capacity and factor timing effects in active portfolio management. Journal of Financial Markets, 14(2): 277-300.