What Drives Active Share? Active Stock Selection or Active Stock Weights

Active Share is a popular measure of active management. However, it is not clear what drives Active Share. To improve our understanding, we decompose Active Share into Active Stock Selection (ASE) and Active Stock Weights (ASW). ASE captures portfolio weights in stocks outside the portfolio benchmark and correlates positively (88%) with Active Share. ASW captures portfolio weight deviations from market capitalization weights and correlates negatively (-55%). Furthermore, we find some evidence that ASE positively predicts performance, while ASW negatively predicts performance. Our results suggest that the benefits of Active Share stem from the selection decision rather than the weighting decision.