The Presence of Style Drift in Active Mutual Funds: Evidence from China

22 Pages Posted: 22 Oct 2018

See all articles by Angeline Kim Pei Chua

Angeline Kim Pei Chua

Royal Melbourne Institute of Technolog (RMIT University)

On Kit Tam

RMIT University

Monica Tan

RMIT University; Financial Research Network (FIRN)

Date Written: September 27, 2018

Abstract

Fund managers’ style drift behaviour alters fund risks and may have an impact on fund performance that is detrimental to fund investor’s interest. This paper is a first study on the existence and effects of style drift in the fast growing fund management industry in China. It provides a fine-grained analysis of China’s open-end equity funds based on our fund classifications that accurately reflect the true style of each fund whose name, objective, strategy, philosophy and prospectus are all manually analysed for drift detection. Employing a holding-based methodology and using a unique Chinese dataset, we find evidence of style drift in China. The behaviour is found regardless of fund age. We also examine whether style drift is influenced by fund characteristics and investment timeframe. Our findings offer a new approach in addressing the issue of style drift with evidence providing new insights on fund performance evaluation and design of fund managers’ compensation.

Keywords: Style drift, Mutual funds, Holding-based analysis, Compensation design

JEL Classification: G11, G14, G23, N25

Suggested Citation

Chua, Kim Pei Angeline and Tam, On Kit and Tan, Monica, The Presence of Style Drift in Active Mutual Funds: Evidence from China (September 27, 2018). Available at SSRN: https://ssrn.com/abstract=3168407 or http://dx.doi.org/10.2139/ssrn.3168407

Kim Pei Angeline Chua (Contact Author)

Royal Melbourne Institute of Technolog (RMIT University) ( email )

Swanston Academic Building
Level 11, 445 Swanston Street
Melbourne, 3000
Australia

On Kit Tam

RMIT University ( email )

College of Business
Swanston Street
Melbourne, Victoria 3000
Australia

Monica Tan

RMIT University ( email )

35 Herlihys Rd
Templestowe Lower, 3107
Australia
403388233 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
183
Abstract Views
877
Rank
296,207
PlumX Metrics