Open-end Fund Investment Style Drift

Since the promulgation and implementation of investing funds law, mutual funds have been developing rapidly and became the mainstream of the investing fund market. Almost every mutual fund claims its unique investing style in a direct or indirect way so that a mutual fund can be distinguished from other mutual funds. To maintain the investing style is vital to control risk and protect investors. However, some mutual funds don't comply with its promise in.the contact. These mutual funds tend to swift its investing style according to the ups and downs of the stock market. This paper defines the fact that the actual investing style is against the contract as the "style drift". "Style drift" causes investors to make wrong decision and lose control of the investing risk. Therefore, it is important and meaningful to do research on "style drift".Firstly, this paper analyses and researches the characters of the mutual funds in China. Then, it proposes the definition of investing style based on the summary of current research in this area. After that, it researches the "in advance"investing style classification system. Secondly, this paper summarizes the theory background of the research on mutual investing style. Then it researches the "style drift" in the prospect of agency theory and behavior finance theory. Thirdly, this paper adopts Gruber Regression model and Morningstar investing box to identify the actual investing style. It takes the style index provided by Spcitic as the benchmark investing style to analyses the actual investing style of all the 22 stock mutual funds set up before Dec.31,2004. The conclusion of the two methods is almost the same: "style drift" occurs in some of the sample mutual funds. After that, this paper adopt Sharpe ratio to evaluate the performance of these mutual funds and finds that the "style drift" group tends to get better performance. Finally, this paper analyses the reasons of the "style drift". This paper finds that the stock market, the investor and the corporate governance of mutual funds are the most important three factors of this issue.