Time to Come Out of the Closet: A Study of Active Fund Management in Sweden

Sammanfattning: We study the performance of mutual funds and relate it to Active Share on the Swedish fund market, a market where a large portion of funds claim that they engage in more active management than what they really are. During the 09/30/2005 to 09/30/2014 time period we find with statistical significance that a portfolio consisting only of low Active Share large cap funds has underperformed relative to its benchmark. We are unable to reject the null hypothesis that a corresponding portfolio consisting of high Active Share large cap funds have performed equal to its benchmark. We find, with statistical significance, that a high Active Share level is a fund characteristic associated with a high alpha. Further we study Active Share over time and find that Swedish funds seem to shift their level of Active Share as market conditions change. These results are in line with studies performed on the U.S. market. Finally, by using game theory we illustrate that a market equilibrium exists where some funds purports to be more active than what they really are. Based on our findings we suggest a change in information disclosure policy.