Active Share and Performance of Norwegian Equity Funds

Abstract

We measure the degree of active management in Norwegian equity mutual funds and investigate how it relates to fund performance in the period 2007-2018. Our measures of active management are active share and tracking error. We find that while the mutual funds do outperform their benchmark index, only 42% of the Carhart four-factor alphas are statistically significant, yet still not economically significant. Sorting funds into equal-weighted portfolios based on active share and tracking error, we find a positive correlation between active share and fund performance, whereas tracking error has a zero to negative relationship. Sorting funds into portfolios based on fund size and active share, we find that the level of active share has the largest positive effect on the smallest firms.