Investment Style Volatility and Mutual Fund Performance


Keith C. Brown

W. V. Harlow

Hanjiang Zhang



May 2015





We develop a holdings-based statistic to measure the volatility of a fund’s investment style characteristic profile over time.  On average, funds with lower levels of style volatility significantly outperform more style-volatile funds on a risk-adjusted basis.  We show that style volatility has a distinct impact on future fund performance compared to fund expenses or past risk-adjusted returns, with the level of indirect style volatility being the primary determinant of the overall effect.  We conclude that deciding to maintain a less volatile investment style is an important aspect of the portfolio management process.


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