Active Manager Performance: Alpha and Persistence

Abstract

The purpose of this paper is to investigate and discuss historical active manager performance relative to the performance of an appropriate market benchmark. Although this subject has been written about extensively, much of the analysis has traditionally been plagued with data quality issues. Specifically, survivorship bias, selection bias, and classification noise within manager performance data are present in any analysis that does not account for them, potentially leading to misleading outcomes. Our analysis takes steps to correct these data quality issues where possible. Using this more representative and appropriate data, this paper uses a number of metrics to analyze the relative performance of active managers over an extensive time period. Our analysis evaluates whether managers have added value historically, if there is a difference across asset classes, and if past relative performance has been indicative of future relative performance (i.e., persistence).