Trading behaviour and the performance of daily institutional trades

Utilizing a unique database of daily trading activity, this study examines the ability of active Australian equity managers to earn superior risk-adjusted returns. We find evidence of superior trade performance, where performance is a function of stock size. Our findings indicate that active equity managers are able to successfully exploit private information more readily in stocks ranked 101-150 by market-cap, where the degree of analyst coverage, information flows and market efficiency are lower than for large-cap stocks. We also find evidence of manager specialization, with growth managers being more successful in trading growth stocks. Our evidence provides further support of the value of active investment management in Australian equities.