Returns from active management in international equity markets: evidence from a panel of UK pension funds

This paper proposes new performance decomposition measures that allow one to analyse the sources of returns on the international equity holdings of a large cross-section of UK pension funds. Our results suggest that the pension funds earned negative returns both from international market timing and from selecting stocks within individual foreign regions. The average fund underperformed a passive global equity benchmark by 70 basis points per annum. This is substantially greater than UK pension funds' underperformance in their domestic equity market. We discuss the implications of these findings for theories of informational asymmetries in international stock markets.