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Article

Market Diversity and the Performance of Actively
Managed Portfolios

Anna Agapova, Robert Ferguson and Jason Greene
The Journal of Portfolio Management Fall 2011, 38 (1) 48-59; DOI: https://doi.org/10.3905/jpm.2011.38.1.048
Anna Agapova
is an assistant professor of finance at Florida Atlantic University in Boca Raton, FL.
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  • For correspondence: aagapova@fau.edu
Robert Ferguson
is a senior investment officer at INTECH Investment Management, LLC, in West Palm Beach, FL.
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  • For correspondence: rferguson@intechjanus.com
Jason Greene
is a professor of finance at Southern Illinois University Carbondale in Carbondale, IL.
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  • For correspondence: jgreene@business.siuc.edu
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Abstract

Agapova, Ferguson, and Greene examine a theoretically motivated measure of the “size effect” known as market diversity and link it to the relative returns of institutional actively managed portfolios. Market diversity reflects how disperse or concentrated capital is across firms in the market, with changes in market diversity reflecting movement of capital between relatively large firms to relatively small firms. Changes in market diversity explain a statistically and economically significant amount of variation in the relative returns of actively managed institutional large-cap strategies. The authors estimate that an increase (decrease) in market diversity of 1% leads to an average increase (decrease) in relative returns of approximately 30 basis points, with higher tracking error strategies showing relatively more sensitivity. They find that another measure of the size effect, the Fama–French small-minus-big factor, explains less of the variation in actively managed large-cap strategies’ relative returns and is rejected in favor of changes in market diversity as the underlying explanatory variable for actively managed strategies’ relative returns. The authors suggest that market diversity provides academics and practitioners an important measure of market conditions when evaluating the performance of actively managed portfolios.

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The Journal of Portfolio Management: 38 (1)
The Journal of Portfolio Management
Vol. 38, Issue 1
Fall 2011
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Market Diversity and the Performance of Actively
Managed Portfolios
Anna Agapova, Robert Ferguson, Jason Greene
The Journal of Portfolio Management Oct 2011, 38 (1) 48-59; DOI: 10.3905/jpm.2011.38.1.048

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Market Diversity and the Performance of Actively
Managed Portfolios
Anna Agapova, Robert Ferguson, Jason Greene
The Journal of Portfolio Management Oct 2011, 38 (1) 48-59; DOI: 10.3905/jpm.2011.38.1.048
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  • Article
    • Abstract
    • MARKET DIVERSITY, SIZE, AND ACTIVE MANAGEMENT
    • DATA AND ANALYSIS OF ACTIVE LARGE-CAP MANAGERS
    • SUMMARY AND CONCLUSION
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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