Research On Style Drift Of China’s Open-end Funds And Impact Of Style Drift On The Fund Performance

With the popularity of style investment, investment style has been more and more widely accepted by the fund investors. As showed in some studies, style drift has a significant influence on the performance of open-end fund, which is the mainstream product on the security market. The paper defines "style drift" as the phenomenon when the fund’s actual investment style does not coincide with their stated style. To analyze the impact of style drift on the open-end fund performance, this paper introduces the Sharpe Strong Model, the Style Drift Score, Quadratic programming Multiple Regression Analysis and grouping method. Combining with the existing studies, the paper interprets the research with both theoretical analysis and empirical analysis, and draws a couple of conclusions as follows.(1) Style Drift is common in the domestic fund market. The stated style in fund prospectus failed in constraining the actual investment activities. Pre-performance pressure has a significant impact on asset allocation strategy, resulting in a low investment style stability.(2)Style convergence is obviously found in the domestic open-end fund market. Growth and large-cap style funds dominating the market and the value style funds account for a small part of the open-end funds.(3) Style Drift Score can be a good measure for the evolution of a portfolio’s investment style over time. Empirical analysis shows that the Style Drift Score is correlated with actual style drift level, periodical drift frequencies and original stated style.(4) Style Drift does not necessarily lower the fund performance. The paper states that changing style is favorable for the fund performance when the market condition changes; otherwise no style changed is suggested if there is no market change.