Narrow Results

Investors and professional money managers typically categorize assets into different styles to facilitate portfolio management and capital allocations. As market participants move funds among assets of different styles based on their relative performance, correlated trading generates return comovement and style momentum, and affects risk premia. This paper reviews existing literature on style investing, and presents new evidence in a large bond market. The paper shows that style is an important factor that helps explain return comovement, momentum and risk premia in a bond market traditionally dominated by institutional and long-term investors thought to be less behaviorally biased.

Investors and professional money managers typically categorize assets into different styles to facilitate portfolio management and capital allocations. As these market participants move funds among assets of different styles based on their relative performance, correlated trading generates return co-movement and style momentum. This chapter reviews existing theories on style investing and important findings. In particular, it presents new evidence in a large bond market and demonstrates that behavioral finance theory can help explain return co-movement and momentum in the bond market traditionally dominated by institutional and long-term investors who are thought to be less behaviorally biased.