Style Investing, Mutual Fund Flows, and Return Comovement
32 Pages Posted: 16 Mar 2010 Last revised: 22 Aug 2018
Date Written: August 20, 2018
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.
Keywords: Style Investing, Mutual Fund, Flows, and Return Comovement
JEL Classification: G02, G12, G23
Suggested Citation: Suggested Citation