It is intuitively clear that certain fashions exist in the investment industry: at times we witness “technology fashion” or “emerging markets fashion”. In this paper we describe a methodology that allows us to diagnose and measure these style trends or fashions in institutional investment management. Using readily available manager performance databases and a return-based style analysis technique introduced by William F. Sharpe, we were able to identify style cycles for US domestic equity money managers.
Our approach can be used to measure deficiencies and biases in the managers’ performance databases. It can be used by money managers to design their marketing strategies. It can be applied to fixed income and international markets, and used as a basis for arbitrage and style rotation strategies.