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Capacity constraints limit the profits of some investment strategies, while other strategies are more scalable. We develop a dollar-weighted return measure that parses the factor timing by investors and a strategy's capacity constraints. We find that actively managed funds exhibit significant capacity and timing effects, while index funds display only timing effects. A portfolio's liquidity, investment style, and distribution policy are important in explaining variation in capacity constraints.doi:10.2139/ssrn.1516469 fatcat:tgbxuqjwdzbs3p557oxwgw34xq