Style drift: Evidence from small-cap mutual funds |
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| Affiliation: | 1. Smeal College of Business, Pennsylvania State University, University Park, PA 16802, USA;2. Villanova School of Business, Villanova University, Villanova, PA 19085, USA;1. The School of Management, University of Science and Technology of China, Hefei, 230026 China;2. Lingnan (University) College, Sun Yat-sen University, Guagnzhou, 510275 China;3. School of Economics and Management, Shanxi University, Taiyuan, 030006 China;1. College of Business, University of Texas Arlington, United Statesn;2. Business School, University of Colorado Denver, United States;3. Spears School of Business, Oklahoma State University, United Statesn |
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| Abstract: | This paper documents that small-cap mutual funds allocate on average 27% of their portfolio to mid- and large-cap stocks. We find that larger and older small-cap funds are more likely to hold mid- and large-cap stocks, consistent with funds straying from their objective over time. Funds that invest heavily in mid- and large-cap stocks expose their investors to unanticipated risks but investors do not experience higher abnormal returns or performance persistence overall. These funds did outperform their peers by 3% annually in the most recent period between January 2003 and March 2010. |
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