Fundamental driver of fund style drift

Giuseppe Galloppo () and Giovanni Trovato
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Giuseppe Galloppo: University of Rome Tor Vergata
Giovanni Trovato: University of Rome Tor Vergata

Journal of Asset Management, 2017, vol. 18, issue 2, No 2, 99-123

Abstract: Abstract Starting from a review of 500 firms included in the Sp500 US Equity Index and by running a mixture model we built equity portfolios. In particular, the main objective of the present study is to examine the style drift effect during the 2007–2012 global financial crises, and what fundamental variables can contribute to this effect. Overall, there is a transition between Value and growth components among the pre-crisis and crisis periods. This is a passage (Drift) from one style to another. We consider three categories of variables in order to understand what hides behind this drift, namely: firm profitability, financial health and financial analyst information. We also take into account earnings per share (EPS), which means company’s attitude to distribute dividends. In general, it is interesting to note that variables connected to financial health, except for the Current ratio in style transition, tend to have little explanatory power. Our results concerning Analyst information report say that while expectations of market analysts relating to corporate profits are more coupled with the Value component, Analysts’ recommendations, on average, are crossed both for Value and growth factors.

Keywords: investment style; fundamental factors; capm; mixture model; financial crisis (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/s41260-016-0009-4

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