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Aron Gottesman, PhD, is a professor of finance and chair of the
Department of Finance and Economics at the Lubin School of Business,
Pace University. Contact him at email@example.com.
Matthew Morey, PhD, is the New York Stock Exchange Research Scholar
and Professor of Finance at the Lubin School of Business, Pace University.
Contact him at firstname.lastname@example.org.
1. According the Investment Company Institute 2015 Handbook (p. 99),
the average actively managed U.S. equity fund had an expense ratio
of 0.86 percent in 2014. the expense ratio for the Vanguard total
Stock Market Index Fund (which invests only in U.S. equities) is 0.05
percent. in our sample, the average diversified emerging market fund
had an expense ratio in 2014 of 1. 51 percent. the Vanguard emerging
Markets Index Fund has an expense ratio of 0.15 percent.
2. This method of following the funds over time has been used in the
mutual fund literature:, e.g., Elton et al. (1996) or Blake and Morey
3. In several cases, funds were missing one active share observation
in the middle of the six-year sample period. As long as the fund had
active share data on both sides of the missing quarter we continued
to classify the fund as a surviving fund. If the fund had more than one
consecutive quarter of active share data missing we consider the fund
a non-surviving fund.
4. See Cremers et al. (2016) table 7, which shows that all explanatory
variables in the regressions are lagged one year.
5. The MSCI Emerging Markets Equity Momentum Index launched
on december 11, 2013. the mSci emerging markets equity Value-Weighted Index launched on December 7, 2010. The MSCI Emerging
Markets Equity Equal-Weighted Index launched on January 22,
2008. Note that data before the launch date is back-tested data, i.e.,
calculations reflect how the index might have performed over that
time period had the index existed. For more information on these
indexes, see Bender et al. (2013).
6. We also used fund flows as an additional control variable. however,
because the fund flows variable was consistently insignificant in all
our regressions we dropped the variable.
7. We substituted average active share with average tracking error
and tried the same regression. The results were similar when using
tracking error; i.e., there was a significant and positive relationship
between tracking error and performance. More-active funds (as
measured by tracking error) significantly outperformed other funds.
8. In general funds with higher levels of active share have lower
standard deviation in the active share.
9. For more information on the ViF test, see Allison (2012).
10. Using a sample of only surviving funds (those that survived the entire
period 2009–2014), we find very similar results to those reported in
table 4C. These results are available upon request.