In this paper we evaluate applications of (return based) style analysis. The portfolio and positivity constraints imposed by style analysis are useful in constructing mimicking portfolios without short positions. Such mimicking portfolios can be used e.g. to construct efficient portfolios of mutual funds with desired factor loadings if the factor loadings in the underlying factor model are positively weighted portfolios. Under these conditions style analysis may also be used to determine a benchmark portfolio for performance measurement. Attribution of the returns on portfolios of which the actual composition is unobserved to specific asset classes on the basis of return based style analysis is attractive if moreover there are no additional cross exposures between the asset classes and if fund managers hold securities that on average have a beta of one relative to their own asset class. If such restrictions are not met, and in particular if the factor loadings do not generate a positively weighted portfolio, the restrictions inherent in return based style analysis distort the outcomes of standard regression approaches rather than that the analysis is improved. The size of the distortions is illustrated by considering empirical results on style analysis of US mutual funds.

Style analysis, mutual funds, performance measurement, portfolio choice
Corporate Finance and Governance (jel G3), Capital Budgeting; Investment Policy (jel G31), Business Administration and Business Economics; Marketing; Accounting (jel M)
Erasmus Research Institute of Management
ERIM Report Series Research in Management
Copyright 2000, F.A. de Roon, T.E. Nijman, B.J.M. Werker, This report in the ERIM Report Series Research in Management is intended as a means to communicate the results of recent research to academic colleagues and other interested parties. All reports are considered as preliminary and subject to possibly major revisions. This applies equally to opinions expressed, theories developed, and data used. Therefore, comments and suggestions are welcome and should be directed to the authors.
Erasmus Research Institute of Management

de Roon, F.A, Nijman, T.E, & Werker, B.J.M. (2000). Evaluating Style Analysis (No. ERS-2000-11-F&A). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from