Clustering mutual funds by return and risk levels推荐.pdfVIP

Clustering mutual funds by return and risk levels Francesco Lisi and Edoardo Otranto Abstract. Mutual funds classifications, often made by rating agencies, are very common and sometimes criticised. In this work, a three-step statistical procedure for mutual funds classification is proposed. In the first step fund time series are characterised in terms of returns. In the secondstep, a clustering analysis is performed in order to obtain classesof homogeneous funds with respect to the risk levels. In particular, the risk is defined starting from an Asymmetric Threshold-GARCH model aimed to describe minimum, normal and turmoil risk. The third step merges the previous two. An application to 75 European funds belonging to 5 different categories is presented. Key words: clustering, GARCH models, financial risk 1 Introduction The number of mutual funds has grown dramatically over recent years. This has led to a number of classification schemes that should give reliable information to investors on features and performance of funds. Most of these classifications are produced by national or international rating agencies. For example, Morningstar groups funds into categories according to their actual investment style, portfolio composition, capitali- sation, growth prospects, etc. This information is then used, together with that related to returns, risks and costs, to set up a more concise classification commonly referred to as Star Rating (see [11] for details). Actually, each rating agency has a specific owner evaluation method and also national associations of mutual funds managers keep and publish their own classifications. Problems arise as, in general, classes of different classifications do not coincide. Also, all classification procedures have some drawback; for example, they are often based on subjective information and require long elaboration time (see, for example, [15]). In the statistical literature, classificati