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On the Style-Based Feedback Trading of Mutual Fund Managers

Published online by Cambridge University Press:  29 July 2016

Bart Frijns ,
Aaron Gilbert  and
Remco C. J. Zwinkels
Bart Frijns*
Affiliation:
[email protected], Auckland University of Technology, Business School, Auckland, New Zealand
Aaron Gilbert
Affiliation:
[email protected], Auckland University of Technology, Business School, Auckland, New Zealand
Remco C. J. Zwinkels
Affiliation:
[email protected], VU University Amsterdam, Faculty of Economics and Business Administration, Amsterdam 1081 HV, The Netherlands, and Tinbergen Institute.
*
*Corresponding author: [email protected]
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Abstract

This paper examines the style-based feedback trading behavior of U.S. mutual fund managers. We provide an empirical version of Barberis and Shleifer’s style-switching model. We find style-based feedback trading for 77% of the funds, half of which is positive (negative) feedback trading. There is evidence for “twin style” switching, where capital is channeled between value and growth, and between large- and small-cap. Growth (value) funds apply more positive (negative) feedback trading. Funds that switch more aggressively are younger and have higher expense ratios. Finally, we find that positive (negative) feedback trading yields positive (negative) alpha.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 3 , June 2016 , pp. 771 - 800
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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