Do Mutual Funds Styles Reflect a Country-Specific Investment Philosophy? The Italian Case

Abstract

This study investigates whether domestic managers and their foreign counterparts differ in terms of return patterns over time, and where such difference originates. Reasons of financial sophistication of mutual fund markets lead to the assumption that money managers may behave differently from one country to another. In a sense, it would be a latent philosophy underlying the investment strategies, which is able to discriminate funds on the basis of their country origin. To explore this possibility, we rely on the Italian market, which represents an intriguing case study in that mutual fund industry has experienced dramatic growth of domestic as well as foreign-type funds. Consistent with this supposition, our analyses, carried out on a dataset of 4178 open-ended mutual funds, proved that dissimilarities were induced by different dominant styles. Italian funds appeared globally focused on a constant bond-liquidity strategy, whereas foreign funds showed dramatic shift from Bond to Equity between the sub-periods 1998-2000 and 2001-2002.

Keywords: Italian mutual fund, Investment styles, mutual funds dissimilarities, country-based dominant style factors

JEL Classification: G11, G12, G20, G23