Mutual fund intentional style drift: presence, motivation and performance impact.
Chua, K. Style drift is extensively practiced by active mutual funds in mature markets, although fund investors are generally unaware of the extent of this practice.
The asymmetric information thus engendered not only limits the efficacy of fund performance evaluation but also renders fund investors to incorrectly assess the amount of risks they are exposed to and thus contributing to systemic risk. In addition to the unbeknown distortion to the original risk-return profile on which fund investors bought units of the funds, the opportunistic drift behavior could also produce adverse impact on fund performance as fund managers who drift are likely to increase trading to exploit short-term returns to manipulate performance.
This thesis interrogates the presence and pattern of intentional style drift in a market of exclusively in-house fund managers in China, where the fund market is more vulnerable to agency issues as the risk-taking behavior by fund managers is poorly understood.
In particular, this thesis attempts to thoroughly investigate whether drift funds attract more subsequent capital inflows because the expected positive fund inflow is seen as the prime motivator for fund managers to strategically manipulate portfolio style and risk in a bid for higher relative performance ranking to maximize compensation.
In this respect, we will uncover evidence to shed light on the motivation for style drift and also gain insights into the performance impact of this drift behavior. This thesis proposes new metrics for detecting and ranking voluntary style drift for intentional style drift behavior and develops new conceptualization of style-drift tournaments to uncover style drift motivation and effects.
We create an original yearly fund style index using the investible universe of 3, Chinese stocks, on the basis of the holdings-based approach which is rarely attempted in style drift literature. Our 18, fund-year drift observations show that style drift is prevalent.
Doctoral thesis: Measuring mutual fund performance by using theory of networks
The second essay analyzes the performance patterns of new funds during the early stage after their creation, and provides potential explanations for their short-lived outperformance. Using a sample of incubation-free mutual fund data from to , we address the questions of i whether new mutual funds outperform the market and ii if they do what may explain their superior performance.
This outperformance, however, only lasts for a short term and disappears soon after the emerging period. Social bookmarking:.
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- Doctoral thesis: Measuring mutual fund performance by using theory of networks.
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