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Return-based Style Analysis with Time-varying Exposures

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  • Laurens Swinkels, Pieter Jelle VanDerSluis

Abstract

This paper focuses on the estimation of mutual fund styles by return-based style analysis. Usually, the investment style is assumed to be either constant through time, or time variation is implicitly accounted for by using rolling regressions. The former assumption is often contradicted by data analysis, and the latter is inefficient due to its ad hoc chosen window size. We propose to use the Kalman filter to explicitly model time-varying exposures of mutual funds. This leads to a testable model and more efficient use of the data, which reduces the influence of spurious correlation between mutual fund returns and style indices.

Suggested Citation

  • Laurens Swinkels, Pieter Jelle VanDerSluis, 2001. "Return-based Style Analysis with Time-varying Exposures," Computing in Economics and Finance 2001 125, Society for Computational Economics.
    • Handle: RePEc:sce:scecf1:125
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    Cited by:

    1. Darolles, Serge & Vaissié, Mathieu, 2012. "The alpha and omega of fund of hedge fund added value," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1067-1078.
    2. Takaya Fukui & Seisho Sato & Akihiko Takahashi, 2016. "Style Analysis with Particle Filtering and Generalized Simulated Annealing," CIRJE F-Series CIRJE-F-1010, CIRJE, Faculty of Economics, University of Tokyo.
    3. Takaya Fukui & Seisho Sato & Akihiko Takahashi, 2017. "Style analysis with particle filtering and generalized simulated annealing," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(02n03), pages 1-29, June.
    4. Takaya Fukui & Seisho Sato & Akihiko Takahashi, 2017. "This paper proposes a new approach to style analysis of mutual funds in a general state space framework with particle filtering and generalized simulated annealing (GSA). Speci cally, we regard the ex," CARF F-Series CARF-F-383, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    5. Martin Bohl & Philipp Kaufmann & Patrick Stephan, 2012. "From Hero to Zero: Evidence of Performance Reversal and Speculative Bubbles in German Renewable Energy Stocks," CQE Working Papers 2412, Center for Quantitative Economics (CQE), University of Muenster.
    6. Laura Andreu & Cristina Ortiz & José Sarto, 2014. "Herding in the strategic allocations of Spanish pension plan managers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(4), pages 658-671, October.
    7. Yunmi Kim & Douglas Stone & Tae-Hwan Kim, 2021. "Testing for structural breaks in return-based style regression models," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(1), pages 61-76, March.
    8. Kathryn Holmes & Robert Faff & Iain Clacher, 2010. "Style analysis and dominant index timing: an application to Australian multi-sector managed funds," Applied Financial Economics, Taylor & Francis Journals, vol. 20(4), pages 293-301.
    9. Bohl, Martin T. & Kaufmann, Philipp & Stephan, Patrick M., 2013. "From hero to zero: Evidence of performance reversal and speculative bubbles in German renewable energy stocks," Energy Economics, Elsevier, vol. 37(C), pages 40-51.
    10. Chadha, Pearlean & Berrill, Jenny, 2024. "International operations and international influences – Investing in UK firms," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    11. Pizzinga, Adrian & Fernandes, Cristiano, 2006. "State Space Models for Dynamic Style Analysis of Portfolios," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 26(1), May.
    12. Manuel Ammann & Sebastian Fischer & Florian Weigert, 2018. "Risk Factor Exposure Variation and Mutual Fund Performance," Working Papers on Finance 1817, University of St. Gallen, School of Finance, revised Nov 2018.
    13. Laura Andreu & Cristina Ortiz & Jose Luis Sarto, 2009. "Herding behaviour in strategic asset allocations: new approaches on quantitative and intertemporal imitation," Applied Financial Economics, Taylor & Francis Journals, vol. 19(20), pages 1649-1659.
    14. Sha, Yezhou, 2020. "The devil in the style: Mutual fund style drift, performance and common risk factors," Economic Modelling, Elsevier, vol. 86(C), pages 264-273.
    15. 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.
    16. Ammann, Manuel & Fischer, Sebastian & Weigert, Florian, 2020. "Factor exposure variation and mutual fund performance," CFR Working Papers 20-06, University of Cologne, Centre for Financial Research (CFR).
    17. Lambert, Marie & Platania, Federico, 2020. "The macroeconomic drivers in hedge fund beta management," Economic Modelling, Elsevier, vol. 91(C), pages 65-80.
    18. Auer, Benjamin R. & Schuhmacher, Frank & Niemann, Sebastian, 2023. "Cloning mutual fund returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 31-37.
    19. Stephanos Papadamou & Nikolaos A. Kyriazis & Lydia Mermigka, 2017. "Japanese Mutual Funds before and after the Crisis Outburst: A Style- and Performance-Analysis," IJFS, MDPI, vol. 5(1), pages 1-20, March.
    20. 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.
    21. Salotti, Simone & Trecroci, Carmine, 2014. "Multifactor risk loadings and abnormal returns under uncertainty and learning," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(3), pages 393-404.
    22. Holmes, Kathryn A. & Faff, Robert, 2008. "Estimating the performance attributes of Australian multi-sector managed funds within a dynamic Kalman filter framework," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 998-1011, December.
    23. Fiordelisi, Franco & Galloppo, Giuseppe & Lattanzio, Gabriele & Paimanova, Viktoriia, 2023. "Looking at socially responsible investment strategies through the lenses of the global ETF industry," Journal of International Money and Finance, Elsevier, vol. 137(C).
    24. Bodson, Laurent & Cavenaile, Laurent & Sougné, Danielle, 2013. "A global approach to mutual funds market timing ability," Journal of Empirical Finance, Elsevier, vol. 20(C), pages 96-101.
    25. Laurent Bodson & Alain Coën & Georges Hübner, 2010. "Dynamic Hedge Fund Style Analysis With Errors‐In‐Variables," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(3), pages 201-221, September.

    More about this item

    Keywords

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • 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

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