On Mutual Fund Investment Styles

Louis K. C. Chan, Hsiu-Lang Chen and Josef Lakonishok

The Review of Financial Studies, 2002, vol. 15, issue 5, 1407-1437

Abstract: Most mutual funds adopt investment styles that cluster around a broad market benchmark. Few funds take extreme positions away from the index, but those who do are more likely to favor growth stocks and past winners. The bias toward glamour and the tendency of poorly performing value funds to shift styles may reflect agency and behavioral considerations. After adjusting for style, there is evidence that growth managers on average outperform value managers. Though a fund's factor loadings and its portfolio characteristics generally yield similar conclusions about its style, an approach using portfolio characteristics predicts fund returns better. Copyright 2002, Oxford University Press.

Date: 2002
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The Review of Financial Studies is currently edited by Itay Goldstein

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