Mutual funds are typically grouped by their investment objectives or the ‘style’ of their managers. We propose a new empirical to the determination of manager ‘style’. This approach is simple to apply, yet it captures nonlinear patterns of returns that result from virtually all active portfolio management styles. Our classifications are superior to common industry classifications in predicting cross-sectional future performance, as well as past performance, and they also outperform classifications based on risk measures and analogue portfolios. Interestingly, ‘growth’ funds typically break down into several categories that differ in composition and strategy.

Investors in hedge funds and commodity trading advisors (CTAs) are concerned with risk as well as return. We investigate the volatility of hedge funds and CTAs in light of managerial career concerns. We find an association between past performance and risk levels consistent with previous findings for mutual fund managers. Variance shifts depend upon relative rather than absolute fund performance. The importance of relative rankings points to the importance of reputation costs in the investment industry. Our analysis of factors contributing to fund disappearance shows that survival depends on absolute and relative performance, excess volatility, and on fund age.

Alfred Cowles' test of the Dow Theory apparently provides strong evidence against the ability of Wall Street's most famous chartist to forecast the stock market. Cowles (1934) analyzes editorials published by the chief exponent of the Dow Theory, William Peter Hamilton. We review Cowles' evidence and find that it supports the contrary conclusion. Hamilton's timing strategies actually yield high Sharpe ratios and positive alphas for the period 1902 to 1929. Neural net modeling to replicate Hamilton's market calls provides interesting insight into the Dow Theory and allows us to examine the properties of the theory itself out of sample.

Hendricks, Patel, and Zeckhauser (1997) (HPZ) find that the response of current to past returns for mutual funds in the presence of survivorship is nonlinear. In our rejoinder to their paper, we verify their results through simulation, provide some intuition for why the result is true, and evaluate the power of their proposed test based upon the J - shape pattern. Theirs is a useful contribution to the growing literature about the issue of survival biases in empirical finance. It may help to explain puzzling results reported in the mutual fund literature, and may provide a guide for future experimental design. Our investigation of the HPZ results led us to a more complete understanding of how differential volatility affects survival - conditioned returns. Our simulations of the test statistic proposed by HPZ suggest that the power of the test is dependent on the absolute level of the threshold, as well as on the magnitude of the cross - sectional differences in variance. While it would be useful to have a reliable test of the conjecture that survivorship is not driving an observed empirical result, we are only beginning to understand the kind of empirical regularities that survival may induce.

We document a systematic seasonal component in the aggregate underperformance of active mutual funds. At the aggregate level, active funds underperform the market and other passive benchmarks only in the first month of a quarter. This intra-quarter performance seasonality holds across fund sizes and investment styles. The pattern is consistent with short-term stock return reversal effects along with aggregate window-dressing and, to a lesser extent, NAV-inflation practices around quarter-ends. We find marginal or no evidence of microstructure biases, fund investor flows, or cash distributions as sources of this seasonality. Our findings highlight new features of the active management underperformance puzzle.