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On the Style-Based Feedback Trading of Mutual Fund Managers

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  • Frijns, Bart
  • Gilbert, Aaron
  • Zwinkels, Remco C. J.

Abstract

This paper examines the style-based feedback trading behavior of U.S. mutual fund managers. We provide an empirical version of Barberis and Shleifer’s style-switching model. We find style-based feedback trading for 77% of the funds, half of which is positive (negative) feedback trading. There is evidence for “twin style†switching, where capital is channeled between value and growth, and between large- and small-cap. Growth (value) funds apply more positive (negative) feedback trading. Funds that switch more aggressively are younger and have higher expense ratios. Finally, we find that positive (negative) feedback trading yields positive (negative) alpha.

Suggested Citation

  • Frijns, Bart & Gilbert, Aaron & Zwinkels, Remco C. J., 2016. "On the Style-Based Feedback Trading of Mutual Fund Managers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(3), pages 771-800, June.
    • Handle: RePEc:cup:jfinqa:v:51:y:2016:i:03:p:771-800_00
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    Citations

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    Cited by:

    1. Philip A. Stork & Milan Vidojevic & Remco C. J. Zwinkels, 2021. "Behavioral heterogeneity in return expectations across equity style portfolios," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1225-1250, December.
    2. Fabrice Rousseau & Herve Boco & Laurent Germain, 2020. "When Overconfident Traders Meet Feedback Traders - Updated from 2016," Economics Department Working Paper Series n270-16.pdf, Department of Economics, National University of Ireland - Maynooth.
    3. Kutan, Ali M. & Shi, Yukun & Wei, Mingzhe & Zhao, Yang, 2018. "Does the introduction of index futures stabilize stock markets? Further evidence from emerging markets," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 183-197.
    4. Andrikopoulos, Panagiotis & Cui, Yueting & Gad, Samar & Kallinterakis, Vasileios, 2020. "Feedback trading and the ramadan effect in frontier markets," Research in International Business and Finance, Elsevier, vol. 51(C).
    5. Xu, Shaojun, 2023. "Behavioral asset pricing under expected feedback mode," International Review of Financial Analysis, Elsevier, vol. 86(C).
    6. Kallinterakis, Vasileios & Liu, Fei & Pantelous, Athanasios A. & Shao, Jia, 2020. "Pricing inefficiencies and feedback trading: Evidence from country ETFs," International Review of Financial Analysis, Elsevier, vol. 70(C).
    7. Chen, Qinhua & Chi, Yeguang, 2018. "Smart beta, smart money," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 19-38.
    8. Kallinterakis, Vasileios & Karaa, Rabaa, 2023. "From dusk till dawn (and vice versa): Overnight-versus-daytime reversals and feedback trading," International Review of Financial Analysis, Elsevier, vol. 85(C).
    9. Charteris, Ailie & Kallinterakis, Vasileios, 2021. "Feedback trading in retail-dominated assets: Evidence from the gold bullion coin market," International Review of Financial Analysis, Elsevier, vol. 75(C).
    10. Huaizhi Chen & Lauren Cohen & Umit Gurun, 2019. "Don’t Take Their Word For It: The Misclassification of Bond Mutual Funds," NBER Working Papers 26423, National Bureau of Economic Research, Inc.
    11. Santi, Caterina & Zwinkels, Remco C.J., 2023. "Exploring style herding by mutual funds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).

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