Verifying Return-Based Style Analysis Using Composition-Based Factor Returns

M Robertson, C Firer and D Bradfield

Studies in Economics and Econometrics, 2001, vol. 25, issue 2, 87-102

Abstract: There are strong arguments for both the composition-based and returns-based approach to style analysis. Several studies have used these techniques for the purpose of identifying unit trusts that are misclassified in terms of their category. By expanding on a well-established technique, this study investigates whether substituting composition-based style factor returns in a returns-based style analysis framework is able to support the findings of the returns-based style analysis. While both techniques of style analysis are capable of identifying misclassified funds they only give partially consistent results. The technique prevents a fund from being reclassified in terms of a returns-based style analysis if such a reclassification is not supported by a composition-based style analysis.

Date: 2001
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DOI: 10.1080/10800379.2001.12106314

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