Working Paper: NBER ID: w7215
Authors: Louis KC Chan; Hsiulang Chen; Josef Lakonishok
Abstract: We provide an exploratory investigation of mutual funds' investment styles. Funds' styles tend to cluster around a broad market benchmark. When funds deviate from the benchmark they are more likely to favor growth stocks with good past performance. There is some consistency in styles, although funds with poor past performance are more likely to change styles. Some evidence suggests that growth funds have better style-adjusted performance than value funds. The results are not sensitive to style identification procedure, but an approach based on fund portfolio characteristics performs better in predicting future fund returns.
Keywords: Mutual Funds; Investment Styles
JEL Codes: G11; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| benchmark (Y10) | fund investment styles (G11) |
| benchmark deviation (C52) | investment in growth stocks (G31) |
| past performance (C52) | future style decisions (D15) |
| fund type (G23) | performance outcomes (L25) |
| style identification procedures (Y20) | performance predictions (C52) |