An Investigation Of Investment Style Shift And Its Effect On Mutual Fund Performance

In recent years, as the stock market has been continuously frustrating, common investors'awareness of risks is getting reinforced. The fluctuations of capital price and the experiences and lessons of investments make people gradually recognize that investment management by the forecast of capital price is not reliable, and the key point of investment should be the total capital quality but not only a distinct single capital of the investment combination. This change in investors'mind on investment combination indicates that the national spread of the theory of investment style has been gradually taken with great importance it is worth. On the basis of above, this article analyses the situation of the theory of investment style applying to securities market, the characteristics of investment style, and also the variation situation of investment style and its influences to the mutual fund performance in China at present.Firstly, the article analyses the basic definition of the division of fund style, which indicates the division of the style actually is the application of anomaly strategy under the hypothesis of inefficient market. Although different investing idea will form different kinds of investment style, years of investing experiences prove that both developed countries and new stock markets have distinct Book-to-market Anomaly and Size Anomaly. Therefore, value/growth style and size style is the most common kind of method to divide styles, which also has been generally accepted. Then, the article detailedly introduces two ways of discrimination of styles, return-based style analysis and portfolio-based style analysis, which are both the popular ways abroad. This part also makes a compare between the two ways from the perspectives of the forecasting ability, promptness, accuracy and acquirement, which find the return-based style analysis is more suitable for the securities market of China.Secondly, with the method of return-based style analysis, the article carries out the test of concrete evidences of forty stock-oriented open-ended mutual fund which came into market before Dec 31, 2003.We found that styles of these fund products haven't shown diversity and they are all keen on large caps. In addition, these funds have shown different growth-value tendency, but most of them have shown growth and blend style character. Moreover, for some funds, its investment style announced in contracts with investor is actually not consistent with its investment style we examined in empirical analysis, and the latter have shown more consistence. Then, we introduce two indices of measuring investment style consistency which derive from return-based style analysis and examine investment style consistency of forty stock-oriented open-ended mutual funds which came into market before Dec 31, 2003 based on the method of Keith and Harlow. We separate the forty open-ended mutual funds into two groups for comparison in terms of average yield and Sharpe index. We found high-consistency funds tend to outperform low-consistency funds in down market conditions, and this predominance is salience. Moreover, the conclusions based on the two indices are...