Statistical Tests For Return-Based Style Analysis

32 Pages Posted: 25 Jul 2001  

Rogér Otten

Maastricht University - Department of Finance; Philips Pension Fund

Dennis Bams

University of Maastricht - Limburg Institute of Financial Economics (LIFE)

Date Written: July 24, 2001

Abstract

Return-based style analysis investigates the exposure of mutual funds to a number of style indices. Because the style weights need to meet particular constraints, traditionally only point estimates of the style exposures have been reported. In this paper we include the entire asymptotic distribution of the style weights. These results are obtained by applying a combination of the Kuhn-Tucker optimization algorithm and standard bootstrapping. This allows us to infer confidence intervals for the style coefficients, and to carry out statistical tests on the parameters. Empirical tests on a sample of UK equity funds, demonstrate the usefulness of this extra information, in the light of the mutual fund misclassification phenomenon.

Keywords: Mutual Funds, Style Analysis, Portfolio Management, Non-linear Optimization, Kuhn-Tucker, Parameter Uncertainty

JEL Classification: C61, C63, G11, G23

Suggested Citation

Otten, Rogér and Bams, Dennis, Statistical Tests For Return-Based Style Analysis (July 24, 2001). EFMA 2001 Lugano Meetings. Available at SSRN: https://ssrn.com/abstract=277688 or http://dx.doi.org/10.2139/ssrn.277688

Rogér Otten (Contact Author)

Maastricht University - Department of Finance ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3838 (Phone)
+31 43 388 4875 (Fax)

HOME PAGE: http://www.fdewb.unimaas.nl/finance/faculty/Otten

Philips Pension Fund

Eindhoven
Netherlands

Dennis Bams

University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3838 (Phone)
+31 43 325 8530 (Fax)

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