Dressing for Style in the Mutual Fund Industry

40 Pages Posted: 26 Mar 2016

See all articles by Ryan Bubley

Ryan Bubley

University of Miami - School of Business Administration

Timothy R. Burch

University of Miami - Department of Finance

Date Written: March 24, 2016

Abstract

We define benchmark drift based on changes in a fund's beta relative to its self-promoted benchmark, calculated from the portfolio holdings of both the fund and benchmark. Benchmark drift has a strong adverse impact on mutual fund flows, even when funds beat the benchmark. Moreover, controlling benchmark drift plays a larger role in portfolio risk management than tournament-style behavior. Both external and internal governance mechanisms work to control benchmark drift: funds with greater institutional investment and those in larger fund families demonstrate less benchmark drift and take stronger steps to reduce it once it occurs.

Keywords: Mutual funds, Style drift, Mutual fund style

JEL Classification: G23

Suggested Citation

Bubley, Ryan and Burch, Timothy R., Dressing for Style in the Mutual Fund Industry (March 24, 2016). Available at SSRN: https://ssrn.com/abstract=2754313

Ryan Bubley

University of Miami - School of Business Administration ( email )

P.O. Box 248126
Florida
Coral Gables, FL 33124
United States

Timothy R. Burch (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-1509 (Phone)
305-284-4800 (Fax)

HOME PAGE: http://www.bus.miami.edu/~tburch

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