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Does the style drift caused by frequent cross-industry portfolio rebalancing harm fund performance? Evidence from China

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  • Liu, Jianxiang
  • Yi, WenYu

Abstract

The impact of mutual fund managers' investment behavior, such as chasing hot trends and betting on specific sectors through frequent cross-industry rebalancing, on future performance remains unclear. We constructed a new style drift index to quantify this phenomenon and found a negative correlation between style drift and future performance. The above conclusion still holds after a series of robustness tests. Further analysis shows that this relationship is weaker in funds with higher historical stock-picking ability. Overall, the conclusions of this paper have important implications for mutual regulation and guiding individual investors' investment decisions.

Suggested Citation

  • Liu, Jianxiang & Yi, WenYu, 2024. "Does the style drift caused by frequent cross-industry portfolio rebalancing harm fund performance? Evidence from China," Finance Research Letters, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323012102
    DOI: 10.1016/j.frl.2023.104838
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    References listed on IDEAS

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