Staying the Course: The Impact of Investment Style Consistency
On Mutual Fund Performance

53 Pages Posted: 11 Apr 2002  

Keith C. Brown

University of Texas at Austin - Department of Finance

W. Van Harlow

Fidelity Investments

Date Written: March 2002

Abstract

While a mutual fund's investment style influences the returns it generates, little is known about how a manager's execution of the style decision might affect performance. Using multivariate techniques for measuring the consistency of a portfolio's investment mandate, we demonstrate that more style-consistent funds tend to produce higher total and relative returns than less consistent funds, after controlling for past performance and portfolio turnover. These findings are robust across fund investment style classifications, the return measurement period, and the model used to calculate expected returns. We document a positive relationship between measures of fund style consistency and the persistence of its future performance, net of momentum and past performance effects. We conclude that the decision to maintain a consistent investment style is an important aspect of the portfolio management process.

Keywords: mutual funds, investment style, performance measurement, performance persistence

JEL Classification: G11, G23

Suggested Citation

Brown, Keith C. and Harlow, W. Van, Staying the Course: The Impact of Investment Style Consistency On Mutual Fund Performance (March 2002). Available at SSRN: https://ssrn.com/abstract=306999 or http://dx.doi.org/10.2139/ssrn.306999

Keith C. Brown (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6520 (Phone)
512-471-5073 (Fax)

W. Van Harlow

Fidelity Investments ( email )

82 Devonshire Street
Boston, MA 02109
United States
617-563-2673 (Phone)
617-476-9762 (Fax)

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