Returns Based Style Groups and Benchmarking

Posted: 17 Dec 2010

See all articles by Andrew Mason

Andrew Mason

University of Surrey - Surrey Business School

Steve Thomas

City University London - Sir John Cass Business School

Frank McGroarty

University of Southampton - Southampton Business School

Date Written: December 16, 2010

Abstract

In this study we consider the suitability of two methods of returns based style analysis for classification of investment styles for a single asset class, US Diversified Equity Funds. We extend Sharpe (1992) style Returns Based Style Analysis (RBSA) to form style groups using cluster analysis and introduce a parsimonious Best Fit Index (BFI) of style classification which explicitly acknowledges the existence of market segmentation and practitioner benchmarking. Both methodologies explain a significant proportion of the cross section of out of sample returns, but the BFI method performs better, is more transparent, statistically robust and more closely aligned to investment practice.

Keywords: Mutual funds, Style analysis, Benchmarking, Portfolio Management, Management Style, Returns Based Style, Factor Analysis, Cluster Analysis, Style investing, Comovement, Value, Growth, Investment, Asset management

JEL Classification: C25, C38, C61, G11, G20, G23

Suggested Citation

Mason, Andrew and Thomas, Stephen H. and McGroarty, Frank, Returns Based Style Groups and Benchmarking (December 16, 2010). Available at SSRN: https://ssrn.com/abstract=1726419 or http://dx.doi.org/10.2139/ssrn.1726419

Andrew Mason (Contact Author)

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 5XH
United Kingdom
+44-1483-683093 (Phone)

HOME PAGE: http://www2.surrey.ac.uk/management/people/andrew_mason/

Stephen H. Thomas

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0) 20 7040 5271 (Phone)
+44 (0) 20 7040 8881 (Fax)

Frank McGroarty

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

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