Vol. 19, No. 1, 2021
Keith C. Brown, W. V. Harlow and Hanjiang Zhang
We develop a holdings-based statistic to measure the volatility of a fund’s investment style characteristic proﬁle over time. On average, funds with lower levels of style volatility
signiﬁcantly outperform more style-volatile funds on a risk-adjusted basis. We show that style volatility has a distinct impact on future fund performance compared to fund expenses or past risk-adjusted returns, with the level of indirect style volatility being the primary determinant of the overall effect. We conclude that deciding to maintain a less volatile investment style is an important aspect of the portfolio management process.