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2020 Honors Thesis: Andrew Teodorescu


Andrew Teodorescu

Title of Thesis:

Does Mutual Fund Style Category Composition Explain the Benefits of Family Diversification?


Jeong Ho (John) Kim, Caroline Fohlin, Bree Ettinger (Mathematics)


This study examines the influence of family and investment style category factors on the cross-sectional variance and correlation structure of actively managed U.S. mutual fund returns. I find that actively managed fund family returns are largely driven by category factors, and that cross-family correlation rises when accounting for the category composition of the families. In particular, category structure explains roughly half of the cross-sectional differences in family return volatility. Diversification across categories within the same family seems to be a better bet than diversification across families within the same category. My findings suggest that category diversification explains a considerable portion of the rise in investor risk that previous studies have identified when investments are constrained to funds within just one family.

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