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The Presence Of Style Drift In Active Mutual Funds
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Book Synopsis The Presence of Style Drift in Active Mutual Funds by : Angeline Kim Pei Chua
Download or read book The Presence of Style Drift in Active Mutual Funds written by Angeline Kim Pei Chua and published by . This book was released on 2018 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fund managers' style drift behaviour alters fund risks and may have an impact on fund performance that is detrimental to fund investor's interest. This paper is a first study on the existence and effects of style drift in the fast growing fund management industry in China. It provides a fine-grained analysis of China's open-end equity funds based on our fund classifications that accurately reflect the true style of each fund whose name, objective, strategy, philosophy and prospectus are all manually analysed for drift detection. Employing a holding-based methodology and using a unique Chinese dataset, we find evidence of style drift in China. The behaviour is found regardless of fund age. We also examine whether style drift is influenced by fund characteristics and investment timeframe. Our findings offer a new approach in addressing the issue of style drift with evidence providing new insights on fund performance evaluation and design of fund managers' compensation.
Book Synopsis Style Drift and Portfolio Management for Active Australian Equity Funds by : Andrew Ainsworth
Download or read book Style Drift and Portfolio Management for Active Australian Equity Funds written by Andrew Ainsworth and published by . This book was released on 2008 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using monthly active equity fund portfolio holdings, we examine the magnitude of style drift and decompose it into active and passive components. We find that while fund style tilts are consistent with their self-stated investment objective, there is variation in the degree of style bias within style groups. We document that funds actively adjust their portfolio holdings in response to passive style drift to retain a desired portfolio tilt. The degree of adjustment varies with the frequency over which the drift is measured, with funds being most responsive to changes in book-to-market and momentum drift. We also find that certain types of style drift affect portfolio turnover.
Book Synopsis Returns-Chasing Behavior, Mutual Funds and Beta's Death by : Jason J. Karceski
Download or read book Returns-Chasing Behavior, Mutual Funds and Beta's Death written by Jason J. Karceski and published by . This book was released on 2000 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: I develop an agency model where returns-chasing behavior by mutual fund investors causes beta not to be priced to the degree predicted by the standard CAPM. Mutual fund investors chase returns through time, precipitating unusually large aggregate cash inflows into mutual funds just after dramatic market runups. Mutual fund investors also chase returns cross-sectionally across funds. Each period, mutual funds compete in tournaments where the highest-performing funds capture the largest fraction of the aggregate inflows into the mutual fund sector. The interaction between these two flow-performance relationships induces an asymmetry in payoffs to mutual funds such that equity fund managers care most about outperforming peers during bull markets. Since high-beta stocks tend to outperform low-beta stocks in up markets, active fund managers tilt their portfolios toward high-beta stocks, reducing the expected return to these securities in equilibrium. Thus, the presence of actively-managed mutual funds causes beta risk to be priced to a lesser degree than otherwise. Interestingly, the literature suggests that beta died in the early 1980s, coinciding with the spectacular growth of the mutual fund industry in the U.S. To support the model's time-series flow-performance assumption, I show empirically that market returns have a large economic impact on subsequent aggregate mutual fund flows. In addition, data on mutual fund holdings support the model's prediction that the aggregate stock portfolio held by equity mutual funds is over-weighted in high-beta stocks relative to the overall market.
Download or read book Style Drift written by Charles Cao and published by . This book was released on 2017 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents that small-cap mutual funds allocate on average 27% of their portfolio to mid- and large-cap stocks. We find that larger and older small-cap funds are more likely to hold mid- and large-cap stocks, consistent with funds straying from their objective over time. Funds that invest heavily in mid- and large-cap stocks expose their investors to unanticipated risks but investors do not experience higher abnormal returns or performance persistence overall. These funds did outperform their peers by 3% annually in the most recent period between January 2003 and March 2010.
Book Synopsis Are Style Rotating Funds Successful at Style Timing? Evidence from the US Equity Mutual Fund Market by : Adam James Corbett
Download or read book Are Style Rotating Funds Successful at Style Timing? Evidence from the US Equity Mutual Fund Market written by Adam James Corbett and published by . This book was released on 2016 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Are managers who style-rotate successful at timing style shifts? Or, does this type of activity erode fund value? It is well documented that fund styles exposures vary over time, whether it be a result of passive style drift or strategic changes by managers to capitalise on broad style movements. It is therefore reasonable to expect that funds with high style rotation ought to be capable of timing broad style movements. This paper investigates whether funds that frequently change investment styles are capable of timing style movement, and how this behaviour influences performance. Time-varying fund style exposures are estimated for a sample of US domestic equity mutual funds from a dynamic state-space factor model as well as from a holdings-based approach. Style-timing ability is measured from four-factor Treynor-Mazuy and Henriksson-Merton models. The results show that funds that more aggressively rotate portfolios across market, size, value and momentum exposures are less capable of timing movements in these respective style categories and as such perform worse than those that maintain consistent style exposures.
Book Synopsis The Successful Investor Today by : Larry E. Swedroe
Download or read book The Successful Investor Today written by Larry E. Swedroe and published by Macmillan + ORM. This book was released on 2007-04-01 with total page 360 pages. Available in PDF, EPUB and Kindle. Book excerpt: What does it take to achieve superior performance and become a successful investor? Rather than great stock pricing or market timing skills, it is far better for you to understand how the markets work and how to make them work best for you. Larry E. Swedroe argues that the right strategy never changes, no matter whether the bull is stampeding or the bear has emerged from hibernation. The Successful Investor Today was written during one of the greatest bear markets of the post-World War II era--a bear market that was a result of the inevitable bursting of the technology-led bubble of the late 1990s (what Federal Reserve Chairman Alan Greenspan called "irrational exuberance"). Although millions of investors unnecessarily incurred trillions of dollars in losses, neither this bubble, nor the ensuing devastating losses, were anything new. Despite all the horrible investment experiences that have been reported, those investors who followed the fourteen simple truths outlined in this book--including the building of globally diversified portfolios-did not suffer the devastating losses experienced by many others. The fourteen simple truths withstand the tests of logic and time in the way the stock market really works, rather than the way Wall Street and the media would have you believe it works. Since it is generally held that those who fail to plan, plan to fail, an investor must begin with an investment plan. Your plan should be tailored to conform to your unique ability, willingness, and need to take risk. In The Successful Investor Today, you will learn how to build, write, implement, and manage your investment plan over time. This book will help you become a better and more informed investor, and it will help you achieve your financial goals by gradually increasing your wealth. Apart from offering an up-to-date winning strategy, The Successful Investor Today presents an efficient and proven way to avoid the most common--and costly--mistakes investors continue to make.
Book Synopsis Style Consistency and Mutual Fund Returns by : Adiya Bayarmaa
Download or read book Style Consistency and Mutual Fund Returns written by Adiya Bayarmaa and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper carries out style analysis for Russian mutual funds using monthly data from the National Managers' Association over the period January 2008-December 2017; specifically, it applies the RSBA method developed by Sharpe (1992) for evaluating the impact of style on returns, and uses the Style Drift Score (SDS) introduced by Idzorek (2004) as a measure of a fund's style drifting activity. The main findings can be summarised as follows. In the Russian case there is a significant positive relationship between style consistency and profitability of funds. Further, Russian funds are characterised by a high level of style drift, namely deviations from the investment strategy declared at the time of registration as required by Russian law.
Book Synopsis The Efficient Market Theory and Evidence by : Andrew Ang
Download or read book The Efficient Market Theory and Evidence written by Andrew Ang and published by Now Publishers Inc. This book was released on 2011 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Efficient Market Hypothesis (EMH) asserts that, at all times, the price of a security reflects all available information about its fundamental value. The implication of the EMH for investors is that, to the extent that speculative trading is costly, speculation must be a loser's game. Hence, under the EMH, a passive strategy is bound eventually to beat a strategy that uses active management, where active management is characterized as trading that seeks to exploit mispriced assets relative to a risk-adjusted benchmark. The EMH has been refined over the past several decades to reflect the realism of the marketplace, including costly information, transactions costs, financing, agency costs, and other real-world frictions. The most recent expressions of the EMH thus allow a role for arbitrageurs in the market who may profit from their comparative advantages. These advantages may include specialized knowledge, lower trading costs, low management fees or agency costs, and a financing structure that allows the arbitrageur to undertake trades with long verification periods. The actions of these arbitrageurs cause liquid securities markets to be generally fairly efficient with respect to information, despite some notable anomalies.
Book Synopsis Style Consistency, Fund Flow and Performance by : Russell B. Gregory-Allen
Download or read book Style Consistency, Fund Flow and Performance written by Russell B. Gregory-Allen and published by . This book was released on 2015 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This research investigates the relationship between mutual funds investment style consistency, the future funds performance, and funds net flow. Using a large sample of actively-managed U.S. equity mutual funds from Morningstar database, for the period from January 2002 to December 2011, 5555 mutual funds are classified into nine style categories. Our results support the findings from existing literatures that style consistency is of vital importance to fund performance. Taking a different approach we find that more style consistent funds tend to have better long term future performance. However, results suggest that style consistency is not related to future funds net flows, indicating that investors do not pay more attention to style consistency when making their future investment decisions.
Book Synopsis Are Investment Managers Selecting Styles Or Securities? A New Look at the Data by : Hesu Yang
Download or read book Are Investment Managers Selecting Styles Or Securities? A New Look at the Data written by Hesu Yang and published by . This book was released on 2013 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many studies throughout the past years have questioned the performance of actively-managed mutual fund performance and have generally attributed out-performance due to luck rather than skill. In this study, we take a new look at the data by analyzing returns of mutual funds and hedge funds in the U.S. We calculate the alphas for each fund relative to the CAPM and Fama-French 4-Factor models, and also relative to a self-created Quantitative Equity model. The results are suggestive of the existence of skilled managers, but conclusions must be tempered by potential data issues and the possible existence of survivor-bias.
Book Synopsis Alts Democratized by : Jessica Lynn Rabe
Download or read book Alts Democratized written by Jessica Lynn Rabe and published by John Wiley & Sons. This book was released on 2014-12-09 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: A Comprehensive Review of the Liquid Alts Market and How ‘40 Act Products Can Enhance Client Portfolios Liquid alternatives give investors access to hedge fund strategies with the benefits of ’40 Act products: lower fees, higher liquidity, greater transparency, and improved tax efficiency. Alts Democratized is a hands-on guide that offers financial advisors and individual investors the tools and analysis to enhance client portfolios using alternative mutual funds and ETFs. Well-grounded in research and replete with more than 100 exhibits of Lipper data, Alts Democratized profiles the top ten funds in each of the eleven Lipper liquid alt classifications. This includes total net assets, fund flows, risk and return metrics, and the factor exposures that drive performance and help explain correlations to various forms of beta. Jessica Lynn Rabe and Robert J. Martorana, CFA, combine this research with a comprehensive framework for fund selection and portfolio construction to enhance the asset allocation process, facilitate portfolio customization, and manage client expectations. In addition, the book includes functional perspectives on issues pertinent to financial advisors such as fees, client suitability, and volatility management. This helps advisors apply the concepts to portfolios and offer actionable investment advice. The authors also interviewed executives at leading wealth management firms to provide color on industry trends and best practices. The companion website provides ancillary materials that reinforce and supplement the book, including: The authors’ top ten takeaways Classification cheat sheet Portfolio construction guide (full color) Talking points for clients Q&A on liquid alts Presentation with all 118 exhibits from the book (full color) Alts Democratized comprises a complete resource for the advisor seeking new sources of alpha, diversification, and hedging of tail risks.
Book Synopsis Dressing for Style in the Mutual Fund Industry by : Ryan Bubley
Download or read book Dressing for Style in the Mutual Fund Industry written by Ryan Bubley and published by . This book was released on 2016 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We define benchmark drift based on changes in a fund's beta relative to its self-promoted benchmark, calculated from the portfolio holdings of both the fund and benchmark. Benchmark drift has a strong adverse impact on mutual fund flows, even when funds beat the benchmark. Moreover, controlling benchmark drift plays a larger role in portfolio risk management than tournament-style behavior. Both external and internal governance mechanisms work to control benchmark drift: funds with greater institutional investment and those in larger fund families demonstrate less benchmark drift and take stronger steps to reduce it once it occurs.
Book Synopsis Style Investing, Mutual Fund Flows, and Return Comovement by : Zhiyi Qian
Download or read book Style Investing, Mutual Fund Flows, and Return Comovement written by Zhiyi Qian and published by . This book was released on 2018 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore whether style investing by mutual fund investors contributes to return comovement of stocks in the same style, classified by market capitalization and book-to-market ratio. We find that a stock's comovement with other stocks in its style is significantly greater when this stock is owned by mutual funds that focus on the stock's style. This increase in comovement is larger for stocks owned in greater proportion relative to their shares outstanding. Flows into or out of a mutual fund style positively affect return comovement; the effect is more pronounced for index funds than for actively managed funds.
Book Synopsis Style Factor Timing by : David R. Gallagher
Download or read book Style Factor Timing written by David R. Gallagher and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study develops a style rotation model based on quarterly forecasts of style factor (SF) returns, across four style categories, generated using market and macroeconomic data. The prescriptions from this model are tested on a sample of US active equity mutual funds' portfolio holdings. An annual buy-and-hold style timing strategy investing in the factor with the highest forecast return each quarter achieves an average annual excess return of 7.26%, significant at the 1% level during 1981-2011. However, a fund-of-fund (FoF) timing strategy investing in the funds with the greatest exposure (i.e. the preferred funds) to the style predicted to outperform over the following year does not generate statistically significant Daniel, Grinblatt, Titman and Wermers (DGTW)-adjusted performance. The lack of performance is primarily because the long-only funds are by nature unable to fully exploit the long-short SF returns. This highlights the issue of using long-short portfolio returns, particularly when evaluating fund performance.
Book Synopsis Does Style-Shifting Activity Predict Performance? Evidence from Equity Mutual Funds by : Ulf Herrmann
Download or read book Does Style-Shifting Activity Predict Performance? Evidence from Equity Mutual Funds written by Ulf Herrmann and published by . This book was released on 2018 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study introduces an innovative approach to measuring the “style-shifting activity” (SSA) of mutual funds using daily returns. Applying our new measure to a comprehensive sample of 2631 active US equity mutual funds, we show (i) that SSA predicts future performance, especially for current outperformers, and (ii) that SSA adds new information previously not captured by alternative return-based activity measures such as tracking error or R-squared. Comparing the three measures, we show that SSA captures activity very selectively, which makes it a stable and reliable predictor of future performance. Tracking error and R-squared, however, seem to additionally capture some unobserved fund characteristics, as the direction and power of their predictions depend heavily on the consideration of time- and fund-fixed effects. Moreover, investment strategies based on past SSA and past performance earn up to 2.4% (3.6%) p.a. risk-adjusted net (gross) returns which is economically and statistically significant.
Book Synopsis Factor Investing and Asset Allocation: A Business Cycle Perspective by : Vasant Naik
Download or read book Factor Investing and Asset Allocation: A Business Cycle Perspective written by Vasant Naik and published by CFA Institute Research Foundation. This book was released on 2016-12-30 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Does Mutual Fund Investment Style Consistency Affect the Performance of Mutual Funds? by : Yi Zhao
Download or read book Does Mutual Fund Investment Style Consistency Affect the Performance of Mutual Funds? written by Yi Zhao and published by . This book was released on 2009 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt:
