Investment manager skill in small-cap equities

Cong Chen, Carole Comerton-Forde, David R. Gallagher, Terry S. Walter

Research output: Contribution to journalArticleResearchpeer-review

12 Citations (Scopus)


Using a representative sample of monthly portfolio holdings and daily trades, this study presents unique evidence of significant stock selection skill amongst institutional small-cap equity managers on a risk-adjusted basis. Of particular importance is the magnitude of the performance generated by fund managers in our sample. Aggregate four-factor and five-factor alphas are 68 and 59.6 basis points per month before management expenses and tax, respectively. The evidence from holdings and transaction-based metrics of performance also reveals that small-cap equity managers possess superior stock selection ability, from both a statistical and economic perspective. Our results are robust to the deduction of transaction costs. Our research provides important non-U.S. evidence concerning the value of active management, in a market segment which exhibits both lower liquidity and lower analyst coverage.

Original languageEnglish
Pages (from-to)23-49
Number of pages27
JournalAustralian Journal of Management
Issue number1
Publication statusPublished - Apr 2010
Externally publishedYes


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