Can An Active Manager Beat The Benchmark Index Using Anomaly-Based Strategies?

This paper examines whether an active fund manager can outperform the benchmark index using trading strategies based on asset pricing "Anomalies." The author considers an active manager who faces the following constraints on his investment activity: abnormal performance and tracking error are measured relative to a benchmark index, and short positions are prohibited. The manager implements size, book-to-market and momentum strategies by over-weighting small, value or winner stocks and under-weighting large, growth or loser stocks relative to the benchmark index. When the fund manager uses the Fama-French SMB, HML and UMD portfolio weights as the guide for implementing these size, book-to-market and momentum strategies the investment portfolio does not outperform the benchmark.