Instrumental variable test.

This study selects the quarterly data of all equity and equity-oriented hybrid open-end funds in China from 2007 to 2022 as the research sample, and examines the impact of fund style drift on fund returns through a two-ways fixed effect model. Our results show that overall style drift tends to improve fund performance. However, after differentiating the type of style drift, we find that fund drift based on stock picking abilities enhanced performance, whereas fund drift based on chasing market trends reduced fund performance. This study presents a new measurement method based on industry allocation, providing an empirical foundation for research on industry-specific theme funds. It also offers fund managers insights for optimizing performance evaluation and incentive systems, while serving as a reference for regulators to develop flexible, effective policies for market stability.