Open AccessWindow dressing in the Active Share scores in publicly reported portfolios
Author(s) -
Laura Andreu,
Carlos Forner,
José Luis Sarto
Publication year - 2021
Publication title -
business research quarterly
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.995
H-Index - 26
eISSN - 2340-9444
pISSN - 2340-9436
DOI - 10.1177/23409444211024645
Subject(s) - business , tracking (education) , quarter (canadian coin) , tracking error , finance , monetary economics , economics , computer science , psychology , artificial intelligence , pedagogy , control (management) , archaeology , history
Using a unique database that includes publicly disclosed fund holdings at the end of the quarter as well as the holdings in all non-publicly disclosed months, we found that some funds could alter their portfolios in publicly disclosed months to artificially increase their Active Share scores and consequently appear more active and take advantage of the positive relationship between Active Share and money flows. We show how, consistent with non-informed trades, these funds erode their future performance. However, these funds reach their objective of increasing future money flows. Moreover, we find that window-dresser funds can be identified by controlling the level of tracking error. The funds with high Active Share scores and low tracking errors have the highest levels of Active Share window dressing and the worst future returns. However, compared with less active funds, they are able to capture higher money flows. JEL CLASSIFICATION G23; G11