Does Style-Shifting Activity Predict Performance? Evidence from Equity Mutual Funds

Journal article


Publication Details

Author(s): Herrmann U, Rohleder M, Scholz H
Journal: Quarterly Review of Economics and Finance
Publisher: Elsevier BV
Publication year: 2016
Volume: 59
Pages range: 112-130
ISSN: 1062-9769
Language: English


Abstract


This study introduces an innovative approach to measuring the “style-shifting activity” (SSA) of mutual funds using daily returns. Applying our new measure to a comprehensive sample of 2631 active US equity mutual funds, we show (i) that SSA predicts future performance, especially for current outperformers, and (ii) that SSA adds new information previously not captured by alternative return-based activity measures such as tracking error or R-squared. Comparing the three measures, we show that SSA captures activity very selectively, which makes it a stable and reliable predictor of future performance. Tracking error and R-squared, however, seem to additionally capture some unobserved fund characteristics, as the direction and power of their predictions depend heavily on the consideration of time- and fund-fixed effects. Moreover, investment strategies based on past SSA and past performance earn up to 2.4% (3.6%) p.a. risk-adjusted net (gross) returns which is economically and statistically significant.



FAU Authors / FAU Editors

Herrmann, Ulf
Lehrstuhl für Betriebswirtschaftslehre, insbesondere Finanzierung und Banken
Scholz, Hendrik Prof. Dr.
Lehrstuhl für Betriebswirtschaftslehre, insbesondere Finanzierung und Banken


How to cite

APA:
Herrmann, U., Rohleder, M., & Scholz, H. (2016). Does Style-Shifting Activity Predict Performance? Evidence from Equity Mutual Funds. Quarterly Review of Economics and Finance, 59, 112-130. https://dx.doi.org/10.1016/j.qref.2015.03.003

MLA:
Herrmann, Ulf, Martin Rohleder, and Hendrik Scholz. "Does Style-Shifting Activity Predict Performance? Evidence from Equity Mutual Funds." Quarterly Review of Economics and Finance 59 (2016): 112-130.

BibTeX: 

Last updated on 2018-19-04 at 03:00