Abstract

http://ssrn.com/abstract=1971363
 
 

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Dynamic Style Analysis and Applications


Michael Markov


Markov Processes International LLC

Vadim Mottl


Computing Centre of the Russian Academy of Sciences

Ilya Muchnik


Rutgers, The State University of New Jersey - Rutgers Center for Operations Research (RUTCOR)

August 31, 2004


Abstract:     
We analyze the shortcomings of existing multi-factor models based on portfolio performance data in detecting investment portfolio dynamics such as gradual style drift or rapid changes in strategy. We then lay the groundwork for a new approach, which we call Dynamic Style Analysis (DSA), representing a time-series multi-factor portfolio analysis model. The major concepts of the new methodology are gradually introduced and applied to analyses of both model portfolios and well-known US equity mutual funds. By comparing publicly available holdings data with results obtained with DSA, we demonstrate both the superiority of the new model and its remarkable accuracy in detecting portfolio dynamics. We also address issues such as the computational complexity of DSA and its practical applications in the areas of risk management, performance measurement and investment research. One of the major applications of the new methodology lies in hedge fund due diligence and risk monitoring, where the importance of uncovering and controlling hidden factor dynamics is especially valuable given the limited transparency of hedge funds.

Number of Pages in PDF File: 32

Keywords: style analysis, returns-bases style analysis, mutual funds, hedge funds

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Date posted: December 13, 2011 ; Last revised: December 26, 2012

Suggested Citation

Markov, Michael and Mottl, Vadim and Muchnik, Ilya, Dynamic Style Analysis and Applications (August 31, 2004). Available at SSRN: http://ssrn.com/abstract=1971363 or http://dx.doi.org/10.2139/ssrn.1971363

Contact Information

Michael Markov (Contact Author)
Markov Processes International LLC ( email )
25 Deforest Ave
Suite 102
Summit, NJ 07901
United States
HOME PAGE: http://www.markovprocesses.com
Vadim Mottl
Computing Centre of the Russian Academy of Sciences ( email )
Russia
Ilya Muchnik
Rutgers, The State University of New Jersey - Rutgers Center for Operations Research (RUTCOR) ( email )
New Brunswick, NJ 08903
United States
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