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Network centrality, style drift, and mutual fund performance

Author

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  • Yi, Li
  • Xiao, Li
  • Liao, Yinkai

Abstract

This paper examines how style drift behavior of Chinese fund managers moderates the impact of network centrality on fund performance. We first construct network connections of mutual funds based on the top ten stocks and find that network centrality generates a favorable influence on risk-adjusted performance. We further measure the total style drift of the top ten stocks from size, value, and momentum dimensions, and decompose it into the active and passive style drift components. Our results indicate that higher style drift leads to worse investment performance. More importantly, we find that in spite of total style drift having a weak moderating effect, active (passive) style drift exerts a significantly negative (positive) moderating effect on the positive relationship between centrality and performance. The findings imply that fund managers with high network centrality can reduce active style drift for having superior performance and benefit from their passive style drift.

Suggested Citation

  • Yi, Li & Xiao, Li & Liao, Yinkai, 2024. "Network centrality, style drift, and mutual fund performance," Research in International Business and Finance, Elsevier, vol. 70(PA).
    • Handle: RePEc:eee:riibaf:v:70:y:2024:i:pa:s0275531924001417
    DOI: 10.1016/j.ribaf.2024.102348
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