Evaluating Style Analysis

F.A. de Roon, T.E. Nijman, J.R. Ter Horst

Research output: Working paperDiscussion paperOther research output

336 Downloads (Pure)

Abstract

In this paper we evaluate applications of (return based) style analysis.The portfolio and positivity constraints imposed by style analysis are useful in constructing mimicking portfolios without short positions.Such mimicking portfolios can be used, e.g., to construct efficient portfolios of mutual funds with desired factor loadings if the factor loadings in the underlying factor model are positively weighted portfolios.Under these conditions style analysis may also be used to determine a benchmark portfolio for performance measurement. Attribution of the returns on portfolios of which the actual composition is unobserved to speciffic asset classes on the basis of return based style analysis is attractive if moreover there are no additional cross exposures between the asset classes and if fund managers hold securities that on average have a beta of one relative to their own asset class.If such restrictions are not met, and in particular if the factor loadings do not generate a positively weighted portfolio, the restrictions inherent in return based style analysis distort the outcomes of standard regression approaches rather than that the analysis is improved.The size of the distortions is illustrated by considering empirical results on style analysis of US mutual funds.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages36
Volume2000-64
Publication statusPublished - 2000

Publication series

NameCentER Discussion Paper
Volume2000-64

Fingerprint

Style analysis
Assets
Factor loadings
Mutual funds
Empirical results
Efficient portfolio
Performance measurement
Benchmark portfolio
Attribution
Fund managers

Keywords

  • mutual funds
  • style analysis

Cite this

de Roon, F. A., Nijman, T. E., & Ter Horst, J. R. (2000). Evaluating Style Analysis. (CentER Discussion Paper; Vol. 2000-64). Tilburg: Finance.
de Roon, F.A. ; Nijman, T.E. ; Ter Horst, J.R. / Evaluating Style Analysis. Tilburg : Finance, 2000. (CentER Discussion Paper).
@techreport{4e6a0462bbd643b9b9ecb4b5d9f11915,
title = "Evaluating Style Analysis",
abstract = "In this paper we evaluate applications of (return based) style analysis.The portfolio and positivity constraints imposed by style analysis are useful in constructing mimicking portfolios without short positions.Such mimicking portfolios can be used, e.g., to construct efficient portfolios of mutual funds with desired factor loadings if the factor loadings in the underlying factor model are positively weighted portfolios.Under these conditions style analysis may also be used to determine a benchmark portfolio for performance measurement. Attribution of the returns on portfolios of which the actual composition is unobserved to speciffic asset classes on the basis of return based style analysis is attractive if moreover there are no additional cross exposures between the asset classes and if fund managers hold securities that on average have a beta of one relative to their own asset class.If such restrictions are not met, and in particular if the factor loadings do not generate a positively weighted portfolio, the restrictions inherent in return based style analysis distort the outcomes of standard regression approaches rather than that the analysis is improved.The size of the distortions is illustrated by considering empirical results on style analysis of US mutual funds.",
keywords = "mutual funds, style analysis",
author = "{de Roon}, F.A. and T.E. Nijman and {Ter Horst}, J.R.",
note = "Pagination: 36",
year = "2000",
language = "English",
volume = "2000-64",
series = "CentER Discussion Paper",
publisher = "Finance",
type = "WorkingPaper",
institution = "Finance",

}

de Roon, FA, Nijman, TE & Ter Horst, JR 2000 'Evaluating Style Analysis' CentER Discussion Paper, vol. 2000-64, Finance, Tilburg.

Evaluating Style Analysis. / de Roon, F.A.; Nijman, T.E.; Ter Horst, J.R.

Tilburg : Finance, 2000. (CentER Discussion Paper; Vol. 2000-64).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Evaluating Style Analysis

AU - de Roon, F.A.

AU - Nijman, T.E.

AU - Ter Horst, J.R.

N1 - Pagination: 36

PY - 2000

Y1 - 2000

N2 - In this paper we evaluate applications of (return based) style analysis.The portfolio and positivity constraints imposed by style analysis are useful in constructing mimicking portfolios without short positions.Such mimicking portfolios can be used, e.g., to construct efficient portfolios of mutual funds with desired factor loadings if the factor loadings in the underlying factor model are positively weighted portfolios.Under these conditions style analysis may also be used to determine a benchmark portfolio for performance measurement. Attribution of the returns on portfolios of which the actual composition is unobserved to speciffic asset classes on the basis of return based style analysis is attractive if moreover there are no additional cross exposures between the asset classes and if fund managers hold securities that on average have a beta of one relative to their own asset class.If such restrictions are not met, and in particular if the factor loadings do not generate a positively weighted portfolio, the restrictions inherent in return based style analysis distort the outcomes of standard regression approaches rather than that the analysis is improved.The size of the distortions is illustrated by considering empirical results on style analysis of US mutual funds.

AB - In this paper we evaluate applications of (return based) style analysis.The portfolio and positivity constraints imposed by style analysis are useful in constructing mimicking portfolios without short positions.Such mimicking portfolios can be used, e.g., to construct efficient portfolios of mutual funds with desired factor loadings if the factor loadings in the underlying factor model are positively weighted portfolios.Under these conditions style analysis may also be used to determine a benchmark portfolio for performance measurement. Attribution of the returns on portfolios of which the actual composition is unobserved to speciffic asset classes on the basis of return based style analysis is attractive if moreover there are no additional cross exposures between the asset classes and if fund managers hold securities that on average have a beta of one relative to their own asset class.If such restrictions are not met, and in particular if the factor loadings do not generate a positively weighted portfolio, the restrictions inherent in return based style analysis distort the outcomes of standard regression approaches rather than that the analysis is improved.The size of the distortions is illustrated by considering empirical results on style analysis of US mutual funds.

KW - mutual funds

KW - style analysis

M3 - Discussion paper

VL - 2000-64

T3 - CentER Discussion Paper

BT - Evaluating Style Analysis

PB - Finance

CY - Tilburg

ER -

de Roon FA, Nijman TE, Ter Horst JR. Evaluating Style Analysis. Tilburg: Finance. 2000. (CentER Discussion Paper).