FYI: Active Share is a popular metric that purports to measure portfolio activity. Though Active Share’s fragility and ease of manipulation are increasingly well-understood, there has been no research on its predictive power. This paper quantifies the predictive power of Active Share and finds that, though Active Share is a statistically significant predictor of the performance difference between portfolio and benchmark (there is a relationship between Active Share and how active a fund is relative to a given benchmark), it is a weak one. The relationship explains only about 5% of the variation in activity across U.S. equity mutual funds. The predictive power of Active Share is a small fraction of that achieved with robust and predictive equity risk models.
Regards,
Ted
http://abwinsights.com/2019/03/08/the-predictive-power-of-active-share/
