INVESTMENT PERFORMANCE ATTRIBUTION OF THE U.S. SMALL-SIZE VALUE MUTUAL FUNDS USING FAMAFRENCH FIVE-FACTOR MODEL
INVESTMENT PERFORMANCE ATTRIBUTION OF THE U.S. SMALL-SIZE VALUE MUTUAL FUNDS USING FAMAFRENCH FIVE-FACTOR MODEL

Summary/Abstract: The purpose of this study is to get an insight into the investment performance of the U.S. small-sizevalue mutual funds. The Fama-French five-factor model was used to perform the regression of the portfolioreturns composed out of the mutual funds with the chosen investment theme, as well as the regression atthe individual level for 64 analyzed mutual funds, against the model’s factors. The study covers the periodfrom January 2010 until November 2021, using monthly returns. Our findings suggest that the factors fromthe original three-factor models are in line with the expectations and there is no presence of the potentialstyle drift. In addition, the operating profit factor shows the expected causality relation. However, theexposure relating to the investing factor is slightly negative and may be surprising to a certain extent,having in mind the stated value style. Investment performance attribution of the portfolio explained theportfolio returns in the relation to the factors and found out that there is a statistically significantunderperformance. Positive contributors to the investment performance are, in the presented order of theimportance, market premium, as well as portfolio tilt towards stocks of the companies with the strongoperating profit, small-capitalization, and aggressive investing policy. Lastly, value-style tilt led tonegative performance contribution because the style was out of favor.

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