2020 Honors Thesis: Andrew Teodorescu

Name:

Andrew Teodorescu

Title of Thesis:

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

Committee:

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

Abstract:

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.