On the Style-Based Feedback Trading of Mutual Fund Managers

49 Pages Posted: 20 Jul 2012 Last revised: 1 Feb 2016

See all articles by Bart Frijns

Bart Frijns

Auckland University of Technology - Faculty of Business & Law

Aaron B. Gilbert

Auckland University of Technology - Faculty of Business & Law

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute

Date Written: July 10, 2013

Abstract

This paper examines the style-based feedback trading behavior of mutual fund managers. We provide an empirical version of the model for style-switching behavior of Barberis and Shleifer (2003). We find style-based feedback trading for 77% of the funds, half of which is positive- (negative-) feedback trading. There is evidence for “twin-style” switching, in which capital is channeled between value and growth, and between large-cap and small-cap. Growth (value) funds apply more positive (negative)-feedback trading. Funds that switch more aggressively are younger and have higher expense ratios. Finally, we find that positive (negative) feedback trading yields positive (negative) alpha.

Keywords: Mutual Fund Managers, Style Switching, Feedback Trading

JEL Classification: C22, C58, G11

Suggested Citation

Frijns, Bart and Gilbert, Aaron B. and Zwinkels, Remco C.J., On the Style-Based Feedback Trading of Mutual Fund Managers (July 10, 2013). Journal of Financial and Quantitative Analysis (JFQA), 02/2013. Available at SSRN: https://ssrn.com/abstract=2114094 or http://dx.doi.org/10.2139/ssrn.2114094

Bart Frijns

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Aaron B. Gilbert

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Remco C.J. Zwinkels (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NL-1081HV
Netherlands
+31 20 59 85220 (Phone)

HOME PAGE: http://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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