Does the style drift caused by frequent cross-industry portfolio rebalancing harm fund performance? Evidence from China

Jianxiang Liu and WenYu Yi

Finance Research Letters, 2024, vol. 60, issue C

Abstract: The impact of mutual fund managers' investment behavior, such as chasing hot trends and betting on specific sectors through frequent cross-industry rebalancing, on future performance remains unclear. We constructed a new style drift index to quantify this phenomenon and found a negative correlation between style drift and future performance. The above conclusion still holds after a series of robustness tests. Further analysis shows that this relationship is weaker in funds with higher historical stock-picking ability. Overall, the conclusions of this paper have important implications for mutual regulation and guiding individual investors' investment decisions.

Keywords: Style drift; Stock-picking ability; Future fund performance (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323012102

DOI: 10.1016/j.frl.2023.104838

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