Do Managers Of Global Equity Funds Outperform Their Respective Style Benchmarks? An Empirical Investigation

Abstract

Empirical literature suggests that stock-picking of fund managers do not provide economic benefits in addition to passively-replicated style benchmarks. This paper constructs a 4-factor style model using the Morgan Stanley Capital International (MSCI) World Index and the global size, value and momentum proxies to replicate the style benchmark returns of 12 actively-managed global equity funds based on the return-decomposition approach of Sharpe (1992). In line with prior literature, it is found that the returns of the global equity funds under investigation are primarily driven by their respective style benchmarks. The selection returns of the analyzed funds are insignificant after adjustments for the inherent style risks. We thus conclude that active stock-picking of fund managers do not provide significant value in addition to asset and style allocation decisions.