Factor/Style Investing

Style Investing: Evidence From Mutual Fund Flows

Topics - Factor/Style Investing

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Style Investing: Evidence From Mutual Fund Flows

EFA 2004 Maastricht Meetings Paper

The number of mutual funds in the United States has sharply increased over the past decade. Nowadays, it is so large that individual investors wanting to invest their money are unlikely to analyze each fund in existence. Then how do investors choose from such a multitude of funds?

It has been documented that past performance aaffects these choices (e.g., Chevalier and Ellison, 1997); other important factors are related to advertising (Sirri and Tufano, 1998, Jain and Wu, 2000). Anecdotal evidence indicates that in an effort to differentiate themselves, funds often specify their investment objectives or styles. Such styles are sometimes referred to in mutual fund prospectuses and advertisements.

For instance, T.Rowe Price compares the performance of its funds to the average returns on funds in the same Lipper style classification (Money, May 2004). Natural questions arise: Do investors care? Which style definitions do investors focus on? What is the impact of style-level information?

The goal of this paper is to answer such questions by measuring investor reactions to fund-level and style-level variables.

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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.


Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.


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