Testing for Structural Breaks in Return-Based Style Regression Models

Yunmi Kim, Douglas Stone and Tae-Hwan Kim (tae-hwan.kim@yonsei.ac.kr)
Additional contact information
Yunmi Kim: Univ of Seoul
Douglas Stone: Allianz Global Investors

No 2020rwp-165, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: It is important for investors to know not only the style of a fund manager in whom they are interested, but also whether this style is constant or changing through time. The style is now easily identified by the so-called style regression. However, there has been no formal and statistically valid method to test for a change in manager style when the two typically imposed restrictions (sum-to-one and non-negativity) are jointly present in style analysis. In this study, we apply and extend the results of Andrews (1997a, 1997b, 1999, 2000) to develop a valid testing procedure for the possibility wherein the location of any possible change does not need to be specified and the case of multiple shifts is accommodated. When our proposed test is applied to the Fidelity Magellan Fund, it is revealed that the fund’s style changed at least twice between 1988 and 2017.

Keywords: Structural Shift; Boundary Parameter; Maximum Chow Test; Style Regression (search for similar items in EconPapers)
JEL-codes: C12 C18 (search for similar items in EconPapers)
Pages: 18pages
Date: 2020-02
New Economics Papers: this item is included in nep-ecm
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Journal Article: Testing for structural breaks in return-based style regression models (2021)
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