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Style Drift and Portfolio Management for Active Australian Equity FundsAndrew B. AinsworthUniversity of Sydney - Finance Discipline; Financial Research Network (FIRN) Kingsley Y. L. FongUniversity of New South Wales - School of Banking and Finance; Financial Research Network (FIRN) David R. GallagherCentre for International Finance and Regulation; The University of New South Wales - Australian School of Business; Macquarie Graduate School of Management April 2007 Abstract: 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.
Number of Pages in PDF File: 36 Keywords: investment style, style drift, consistency, portfolio management, investment performance JEL Classification: G23 working papers seriesDate posted: August 3, 2007Suggested CitationContact Information
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