Posted in Finance, Accounting and Economics Terms, Total Reads: 320
Definition: Style Analysis
Style analysis is the concept which helps in understanding the investor's behaviour when he or she consider various options while making their investments. The idea behind every investment is to generate maximum returns. By understanding the investment style of an individual, it becomes easier to set targets for investment returns and accordingly various investment options can be considered.
Style analysis is particularly important where a money manager is handling the funds of an individual or a company, and the investor has to be sure whether the required targets can be achieved.
Broadly, styles can be classified as small growth, large growth, small value and large value.
Depending upon their experiences, money managers look to choose between various styles. If someone succeeds with a particular type of portfolio, then they prefer to keep that style and hope to reap more benefits using the same strategy.
Returns-based style analysis is a statistical strategy put to use in financial industry to analyse the returns of investment techniques using various different explanatory variables. The model gives a strategy’s exposures vulnerability to asset classes or other any other economic factors, analysed as a metric of a fund or portfolio manager’s style. While the model is in general used to show a security mutual fund’s style with reference to common style axes (for example large/small and value/growth), applications in recent past have extended the model’s use to make highly complicated strategies, such as those employed by hedge funds.