This thesis sheds light on evaluating portfolio performance in terms of investment styles the portfolios follow. Investment styles imply that a fund invests in a distinct group of stocks that share some common characteristics. Investment managers with similar investment styles, who select securities based on same principle criteria, are likely to perform more like each other than like the overall market, or like managers with different styles. This thesis aims to provide an investigation into the effects of styles on portfolio performance. To this end, the characteristics of various investment styles are analyzed, and then the validity of benchmarks used to measure portfolio performance is examined. By using company accounting and monthly return data, I set up portfolios as proxies of value, growth, small-cap, large-cap, momentum, contrarian, and technology investment styles that are widely recognized by professionals and academics. The properties of style portfolios are investigated in order to understand which firms actually enter into the portfolios and their sector breakdown and the extent to which styles overlap. As a general rule, I find differences between styles in terms of accounting ratios and sector emphasis. However, some style portfolios demonstrate similarity with others. Through comparing the overlapping rate between style portfolios with that of a set of simulated random portfolios, I find significant overlaps between selected portfolios for various styles, suggesting that the evaluated styles are not independent. The risk factors used to group style portfolios contribute to establishing benchmark models for evaluating portfolio performance. Before using risk-factor models to evaluate portfolio performance, I investigate the validity of the models through examining abnormal returns of simulated randomly selected portfolios that are expected to have zero average values, since there is no investment skill involved in random portfolios simulation. The results of statistical tests raise doubts as to the validity of various benchmark models, given the fact that most of the benchmark models generate non-zero average abnormal returns for randomly selected portfolios. Finally, a return-based style analysis is used to classify investment styles of the selected UK unit trusts. Generally the unit trusts underperfonn the benchmarks that take account of various risk factors, and very few of the funds showing significantly positive abnormal returns. Regarding investment styles, the small-cap style shows consistently better performance than the other styles. The size and value factor appear to dominate in classifying styles. However, after adding more risk factors into models, the 6-month momentum and 24-month contrarian factors exhibit ability to deviate the unit trusts' exposure to size and book-to-market factors.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:621443 |
| Date | January 2006 |
| Creators | Yu, Tao |
| Publisher | University of Manchester |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
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