Investor Clientele and Style Changing Behavior in Mutual Funds

Bams, Dennis; Otten, Rogér; Ramezanifar, Ehsan

doi:10.2139/ssrn.3106225

Cited by 1 publication

(2 citation statements)

References 40 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Conversely, Kim et al (2000) found and also contrary to reports in the financial press, that the majority of funds that deviated from their stated style objective into higher-risk objectives did achieve a higher performance ranking in their stated objective groups. Bams et al (2017) found that when controlling for investorsố sophistication level, style-changing behaviour had a different impact on various types of fund performance measures.…”

Section: Theoretical Frameworkmentioning

confidence: 97%

See 1 more Smart Citation

Style-changing behaviour in the socially responsible mutual fund industry: consequences on financial and sustainable performance

Muñoz

Vargas

Vicente

2021

SAMPJ

View full text Add to dashboard Cite

Purpose This study aims to examine style-deviation practices in the socially responsible mutual funds (SMRF) industry i.e. how mutual funds game their stated financial objectives to earn a higher relative performance ranking. In addition, the consequences of such practices on sustainable scores and money flows are studied. Design/methodology/approach A sample of 454 US equity SRMFs is studied. This paper uses panel regressions controlling for time and style fixed-effects. Findings This study finds that 17.60% of SRMF managers in the sample are engaged in style deviation practices. These practices positively impact the sustainable performance of SRMFs and negatively impact their financial performance. One effect offsets the other and they consequently do not affect money flows. Another finding is that only investors with lower portfolio sustainability scores do show return-chaser behaviour. Practical implications This paper reveals that SRMF managers deviating from their stated financial style face a dilemma that is non-existent for their conventional peers that is style deviation practices affect financial and sustainable performance in opposing ways, whereas SRMF investor utility depends positively on both dimensions. The findings are not conclusive about the effectiveness of style deviation practices in attracting SRMF money flows. Social implications SRMF industry has experienced tremendous growth in the past decade. The increased competition in this industry has led managers to strive to attract investors, sometimes by relying on irregular practices that enhance their portfolio results. Regulators should consider how to avoid such perverse behaviour with a view to improving mutual funds transparency. Originality/value This is the first research that analyses style deviation practices and their consequences for the SRMF industry.

show abstract

Section: Theoretical Frameworkmentioning

confidence: 97%

“…Our first objective is to determine whether the SRMF industry exercises discipline over its own stated financial styles. In accordance with Bams et al (2017), we use two approaches to measure this: style drift and style deviation. The style drift measure captures the style consistency of the mutual funds.…”

Section: Style-changing Measuresmentioning

confidence: 99%