Investment Styles and Performance Persistence of Equity Funds in Korea using Sharpe¡¯s style analysis
Jangkoo Kang
Changjun Lee
Korea using Sharpe (1992)¡¯s style analysis methodology. Unlike the regression methodology, both the portfolio and positivity constraints are imposed in style analysis proposed by Sharpe. The empirical findings documented in this paper are as follows: First, equity funds in Korea have a tilt toward large stocks rather than small stocks, and growth stocks rather than value stocks. Second, the investment styles are time-varying. Especially, funds that invest in small stocks have increased over the last seven years. Third, using the two style benchmark portfolios, equity funds create the abnormal annual return of 2.60%, 3.12%, respectively. Fourth, outperformance of equity funds in Korea is confirmed using the conditional performance measurement. For robustness check, we employ the famous Fama and French three-factor model (1993) and Carhart four-factor model (1997) as our performance measure and the outperformance is still present. One possible explanation is that fund managers create profits at the expense of the uninformed individual investors whose trades are dominant in Korean stock markets. Finally, consistent with the previous studies, the performance persistence is observed.
Sharpe¡¯s style analysis,Investment styles,Shifts in investment styles,Performance persistence.
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