Mutual fund style drift measured using higher moments and its cash flow incentive

IF 3.8 3区经济学 Q1 BUSINESS, FINANCE

North American Journal of Economics and Finance Pub Date : 2025-01-01 DOI:10.1016/j.najef.2025.102373

Qi Chen , Peng Wang , Dong Yang

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Abstract

This paper evaluates the contribution of higher moment information to the identification of mutual fund investment styles. We develop a multi-objective optimization model that identifies fund investment styles by simultaneously considering returns and higher moments risks. Our results indicate that this model, by incorporating variance and skewness, can more accurately identify fund investment styles. We then quantify the degree of style drift exhibited by funds utilizing the proposed model. Employing a dataset of 1327 open-ended equity funds in China between 2008 and 2023, we find that style drift is both pervasive and persistent. Funds susceptible to style drift tend to be smaller, have higher portfolio turnover and expense ratios, and are supervised by less seasoned managers. In addition, we explore how cash flows affect funds’ style drift behavior. Our analysis reveals a positive relationship between low cash inflows and the magnitude of style drift. This finding remains consistent after addressing potential endogeneity concerns. Finally, we find no support for the hypothesis that style drift enhances future fund performance.

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来源期刊

North American Journal of Economics and Finance Multiple-

CiteScore

7.30

自引率

8.30%

发文量

168

期刊介绍： The focus of the North-American Journal of Economics and Finance is on the economics of integration of goods, services, financial markets, at both regional and global levels with the role of economic policy in that process playing an important role. Both theoretical and empirical papers are welcome. Empirical and policy-related papers that rely on data and the experiences of countries outside North America are also welcome. Papers should offer concrete lessons about the ongoing process of globalization, or policy implications about how governments, domestic or international institutions, can improve the coordination of their activities. Empirical analysis should be capable of replication. Authors of accepted papers will be encouraged to supply data and computer programs.