Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300469 
Year of Publication: 
2024
Series/Report no.: 
AEI Economics Working Paper Series No. 2024-06
Publisher: 
American Enterprise Institute (AEI), Washington, DC
Abstract: 
We show that active equity funds deliberately alter their factor loadings rather than maintaining a constant style. Changes are larger following quarters in which funds either under- or out-perform other funds based on returns or fund flows. Motivated by this observation, we identify a new measure of manager skill, which we call "tactical investment skill." It captures a manager's ex-ante observable ability to increase future returns through loadings changes. We show that high-skill managers outperform their low-skill peers in the following month in terms of raw returns and alphas. This outperformance is more pronounced following quarters with large loadings changes.
Subjects: 
Mutual fund style
style changes
active fund management
manager skill
factor timing
tactical investment skill
JEL: 
G10
G20
G23
Document Type: 
Working Paper

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