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Fund industry style drift and performance volatility in China

Author

Listed:
  • Chen, Yaozhi
  • Cui, Yue
  • Wei, Honghong

Abstract

Chinese funds commonly exhibit a mismatch between their actual investment styles and stated investment objectives. Using a quarterly panel of Chinese open-end funds from 2007 to 2025, we develop a new method for measuring fund industry style drift. Our analysis shows that style drift significantly increases performance volatility. This negative impact is particularly severe for funds with lower performance rankings, suggesting that underperforming managers engage in risk-shifting. By examining a 2021 regulatory intervention, we find that regulatory oversight effectively curtails this volatility.

Suggested Citation

  • Chen, Yaozhi & Cui, Yue & Wei, Honghong, 2026. "Fund industry style drift and performance volatility in China," Finance Research Letters, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finlet:v:94:y:2026:i:c:s1544612326002199
    DOI: 10.1016/j.frl.2026.109688
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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