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http://dx.doi.org/10.5351/KJAS.2010.23.5.783

Veri cation of the Style Consistency of Domesti Equity Mutual Funds Using Return-Based Style Analysis  

Kwon, In-Young (Department of Financial Engineering, Korea University)
Song, Seong-Joo (Department of Statistics, Korea University)
Publication Information
The Korean Journal of Applied Statistics / v.23, no.5, 2010 , pp. 783-797 More about this Journal
Abstract
Based on the importance of asset allocation in the return of an investment portfolio, this article attempts to verify the appropriateness of mutual funds as means of investment to obtain optimal asset allocation. The return-based style analysis is applied to determine a mutual fund's allocation(or a style) among a set of specified asset classes. Assuming a particular investor who defines a range allowed a fund's style to differ from its original one, it is examined whether or not the fund style is continued over an investment time horizon. After verifying the fact that the original style of the investment fails to remain unchanged from the empirical analysis limited to domestic equity mutual funds, we further investigated the reasons for the style drift. Despite several limitations of the analysis, it yields the conclusion that domestic equity mutual funds do not seem to be an appropriate investment tool to achieve a target asset allocation.
Keywords
Return-based style analysis(RBSA); style index; style consistency; domestic equity mutual fund;
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