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Style analysis for diversified US equity funds

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  • Andrew Mason

    (Surrey Business School, University of Surrey)

  • Frank McGroarty
  • Steve Thomas

Abstract

In this study, we consider two methods of returns-based style analysis (RBSA) for classification of investment styles for a single asset class, US Diversified Equity Funds. We extend Sharpe's style RBSA by forming style groups using cluster analysis and RBSA factors. We also introduce a parsimonious Best Fit Index (BFI) of style classification that explicitly acknowledges the existence of market segmentation and practitioner benchmarking. The methods provide complementary information about mutual fund returns. Both methodologies explain a significant proportion of the cross section of out-of-sample returns, but the BFI method performs better out-of-sample is more transparent and more closely aligned to investment practice.

Suggested Citation

  • Andrew Mason & Frank McGroarty & Steve Thomas, 2012. "Style analysis for diversified US equity funds," Journal of Asset Management, Palgrave Macmillan, vol. 13(3), pages 170-185, June.
    • Handle: RePEc:pal:assmgt:v:13:y:2012:i:3:d:10.1057_jam.2012.6
    DOI: 10.1057/jam.2012.6
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    References listed on IDEAS

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    Cited by:

    1. Andrew Mason & Frank McGroarty & Steve Thomas, 2013. "Complementary or contradictory? Combining returns-based and characteristics-based investment style analysis," Journal of Asset Management, Palgrave Macmillan, vol. 14(6), pages 423-438, December.

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