Norwegian equity funds: an empirical study of active management & performance

Abstract

This thesis is a comprehensive study of fund management in Norway, with particular emphasis on active management and performance. The utilized sample include 59 Norwegian equity mutual funds from 1996-2014. In general, we apply well-known methodologies with different modifications, investigating the degree of active fund management and fund performance. Our analyses can be divided into three separate examinations to keep contextual tidiness. The yielded results should, however, be contemplated in coherence. First, we look at the degree of active management using the statistical measure R2. This is obtained from a regression of fund returns on a multifactor benchmark model. Lower R2 indicates greater deviation from the benchmark, and our results indicate that half of the Norwegian equity funds are close to being index funds. We see that loading on the smallminus- big risk factor is particularly prevalent, and captures most of the deviation from the market. Second, we examine the hypothesis that fund performance can be predicted by its degree of active management. Equity funds sorted into highest quartile lagged R2 generally outperforms the lowest quartile lagged R2. However, we do not find enough consistency in our results to prove that R2 is a credible predictor of performance. Moreover, we observe that the importance of preceding performance increases as R2 decreases. Third, we examine the effects of fund characteristics on its degree of active management. Across funds, more active management is positively associated with expenses and fund age. In addition, the investment style coefficients show that more active funds invest in small size stocks.