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Style Drift
Style drift occurs when a mutual fund's actual and declared investment style differs. A mutual fund’s declared investment style can be found in the fund prospectus which investors commonly rely upon to aid their investment decisions. For most investors, they assumed that mutual fund managers will invest according to the advertised guidelines, this is however, not the case for a fund with style drift. Style drift is commonplace in today’s mutual fund industry, making no distinction between developed and developing markets according to studies, e.g., in the United States Brown, S.J., Goetzmann, W.N., 1997. Mutual fund styles. Journal of Financial Economics 43, 373-399. and in China. Sina Stock Finance News (November 22, 2020) https://stock.finance.sina.com.cn/stock/go.php/vReport_Show/kind/11/rptid/659324590642/index.phtml Implications When style drift presents in a mutual fund, the investment information about the fund becomes misleading. Given that in reality, style drif ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Mutual Fund
A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe ('investment company with variable capital'), and the open-ended investment company (OEIC) in the UK. Mutual funds are often classified by their principal investments: money market funds, bond fund, bond or fixed income funds, stock fund, stock or equity funds, or hybrid funds. Funds may also be categorized as index funds, which are passively managed funds that track the performance of an index, such as a stock market index or bond market index, or actively managed funds, which seek to outperform stock market indices but generally charge higher fees. The primary structures of mutual funds are open-end funds, closed-end funds, and unit investment trusts. Over long durations, passively managed funds consistently outperform actively m ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Efficient-market Hypothesis
The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information. Because the EMH is formulated in terms of risk adjustment, it only makes testable predictions when coupled with a particular model of risk. As a result, research in financial economics since at least the 1990s has focused on market anomalies, that is, deviations from specific models of risk. The idea that financial market returns are difficult to predict goes back to Bachelier, Mandelbrot, and Samuelson, but is closely associated with Eugene Fama, in part due to his influential 1970 review of the theoretical and empirical research. The EMH provides the basic logic for modern risk-based theories of asset prices, and frameworks such as consumption-based asset pricing and int ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Active Risk
In finance, tracking error or active risk is a measure of the risk in an investment portfolio that is due to active management decisions made by the portfolio manager; it indicates how closely a portfolio follows the index to which it is benchmarked. The best measure is the standard deviation of the difference between the portfolio and index returns. Many portfolios are managed to a benchmark, typically an index. Some portfolios, notably index funds, are expected to replicate, before trading and other costs, the returns of an index exactly, while others ' actively manage' the portfolio by deviating from the index in order to generate active returns. Tracking error measures the deviation from the benchmark: an index fund has a near-zero tracking error, while an actively managed portfolio would normally have a higher tracking error. Thus the tracking error does not include any risk (return) that is merely a function of the market's movement. In addition to risk (return) from specific ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Investment Style
Investment style, is a term in investment management (and more generally, in finance), referring to how a characteristic investment philosophy is employed by an investor or fund manager. Investment Philosophies Aswath Damodaran Here, for example, one manager favors Small capitalization, small cap stocks, while another prefers large blue-chip stocks. The classification extends across asset classes — Stock, equities, Bond (finance), bonds or financial derivatives — and within each further weighs factors such as Leverage (finance), leverage, momentum investing, momentum, diversification (finance), diversification benefits, value stock, relative value or growth stock, growth prospects. Major style choices include the following: *Active vs. Passive: acti ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Asset Allocation
Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. The focus is on the characteristics of the overall portfolio. Such a strategy contrasts with an approach that focuses on individual assets. Description Many financial experts argue that asset allocation is an important factor in determining returns for an investment portfolio. Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. A fundamental justification for asset allocation is the notion that different asset classes offer returns that are not perfectly correlated, hence diversification reduces the overall risk in terms of the variability of returns for a given level of expected return. Asset diversification has been described as "the only f ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Portfolio (finance)
In finance, a portfolio is a collection of investments. Definition The term "portfolio" refers to any combination of financial assets such as stocks, bonds and cash. Portfolios may be held by individual investors or managed by financial professionals, hedge funds, banks and other financial institutions. It is a generally accepted principle that a portfolio is designed according to the investor's risk tolerance, time frame and investment objectives. The monetary value of each asset may influence the risk/reward ratio of the portfolio. When determining asset allocation, the aim is to maximise the expected return and minimise the risk. This is an example of a multi-objective optimization problem: many efficient solutions are available and the preferred solution must be selected by considering a tradeoff between risk and return. In particular, a portfolio A is dominated by another portfolio A' if A' has a greater expected gain and a lesser risk than A. If no portfolio dominates A ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Returns-based Style Analysis
Returns-based style analysis (RBSA) is a statistical technique used in finance to deconstruct the returns of investment strategies using a variety of explanatory variables. The model results in a strategy's exposures to asset classes or other factors, interpreted as a measure of a fund or portfolio manager's investment style. While the model is most frequently used to show an equity mutual fund’s style with reference to common style axes (such as large/small and value/growth), recent applications have extended the model’s utility to model more complex strategies, such as those employed by hedge funds. History William F. Sharpe first presented the model in his 1988 article "Determining a Fund’s Effective Asset Mix". Under the name RBSA, this model was made available in commercial software soon after and retains a consistent presence in mutual fund analysis reporting. As the investment community has expanded beyond security selection to the embrace of asset allocation as t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Performance Attribution
Performance attribution, or investment performance attribution is a set of techniques that performance analysts use to explain why a portfolio's performance differed from the benchmark. This difference between the portfolio return and the benchmark return is known as the active return. The active return is the component of a portfolio's performance that arises from the fact that the portfolio is actively managed. Different kinds of performance attribution provide different ways of explaining the active return. Attribution analysis attempts to distinguish which of the various different factors affecting portfolio performance is the source of the portfolio's overall performance. Specifically, this method compares the total return of the manager's actual investment holdings with the return for a predetermined benchmark portfolio and decomposes the difference into a ''selection effect'' and an ''allocation effect''. Simple example Consider a portfolio whose benchmark consists o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Financial Market
A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets as commodities. The term "market" is sometimes used for what are more strictly ''exchanges'', that is, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical location (such as the New York Stock Exchange (NYSE), London Stock Exchange (LSE), Bombay Stock Exchange (BSE) or Johannesburg Stock Exchange ( JSE Limited)) or an electronic system such as NASDAQ. Much trading of stocks takes place on an exchange; still, corporate actions (mergers, spinoffs) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell the stock from the one to the other without using an exchange. Trading of currencies and bonds is largely on a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Calendar Effect
A calendar effect (or calendar anomaly) is the difference in behavior of a system that is related to the calendar such as the day of the week, time of the month, time of the year, time within the U.S. presidential cycle, or decade within the century. It is most often used in a financial context to describe a market anomaly; traders may use market timing to profit from moves in stock prices based on the calendar. Examples Stock market * Sell in May * January effect * January barometer * Mark Twain effect * The Congressional Effect * Santa Claus rally * Super Bowl indicator * United States presidential election cycle * Weekend effect: Over the very long run, on average, weekend returns in US stock prices have tended to be negative. * Midweek effect: In the US, stock returns from between the Monday close and the Wednesday close have tended to grow at a near-constant rate since the 1880s. Other * Grand supercycle * Kondratiev wave * July effect - risk of medical errors and surgical c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Technical Analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. As a type of active management, it stands in contradiction to much of modern portfolio theory. The efficacy of technical analysis is disputed by the efficient-market hypothesis, which states that stock market prices are essentially unpredictable, and research on whether technical analysis offers any benefit has produced mixed results.Osler, Karen (July 2000). "Support for Resistance: Technical Analysis and Intraday Exchange Rates," FRBNY Economic Policy Reviewabstract and paper here. It is distinguished from fundamental analysis, which considers a company's financial statements, health, and the overall state of the market and economy. History The principles of technical analysis are derived from hundreds of years of financial market data. Some aspects of technical analysis began to appear in Amste ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
Investment Strategy
In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Individuals have different profit objectives, and their individual skills make different tactics and strategies appropriate. Some choices involve a tradeoff between risk and return. Most investors fall somewhere in between, accepting some risk for the expectation of higher returns. In the field of economics, this decision is driven by finding the investment strategy that has the highest utility. Investors frequently pick investments to hedge themselves against inflation. During periods of high inflation investments such as shares tend to perform less well in real terms. The time horizon of investments also influences the strategy to be followed. Investments such as shares should be invested into with the time frame of a minimum of 5 years in mind. It is recommended in finance a minimum of 6 months to 12 months expenses in a rainy-da ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] [Amazon] |
