Complementary or Contradictory: Combining Returns Based and Characteristics Based Investment Style Analysis

This study is the first to combine returns based (RBS) and characteristics based (CBS) style analysis into a single style analysis model. We address the issue of whether RBS and CBS style analysis are complementary. Out of sample tests confirmed two things; membership of style groups explain a significant degree of cross sectional performance of mutual funds and secondly the cumulative effect of combining BFI (Best Fit Index) and CBS analysis significantly improves on the CBS and BFI models in isolation. The ex post explanatory power of the combined model is greater than the individual parts