Abstract
The purpose of this study is to explore the relationship between the choice of mutual fund investment style and investor investment horizon. The investment style is characterized as a measure of the riskiness of the mutual fund and therefore the required/expected return of a mutual fund ranging from large cap value to small cap growth. The results of this study show that investment horizon and investment style are inter-related. Longer investment horizons are best suited for small cap value and small cap growth. In general, for each investment horizon, the large cap value style had the lowest expected return as evidenced by its beta coefficient. The investment style with the highest expected return depends on the investment horizon.
Highlights
Total net assets of worldwide regulated open-end funds increased from $21.7 trillion in 2008 to $49.3 trillion in 2017 according to the Investment Company Institute facebook (2018), net sales increased from $-342 billion in 2008 to $2117 billion in 2017
The investment style is characterized as a measure of the riskiness of the mutual fund and the required/expected return of a mutual fund ranging from large cap value to small cap growth
Their effect is negative for all the investment horizon, with betas varying by investment style and investment horizon
Summary
Households (retail) investors held 90% of the $18.7 trillion in U.S mutual fund total assets. These statistics underscore the importance of mutual funds within the economy. How investors choose among these styles is style not clearly understood Research in this area generally point to past performance as the metric used by investors to select mutual funds to add to their portfolio. Cashman et al (2012) conducted a study on investor behavior They find that equity fund investors are more active monitors of fund performance than hybrid fund investors. They find that net flows “respond both contemporaneously and with a lag to fund performance.”
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