Clustering Mutual Funds by Return and Risk Levels

TitleClustering Mutual Funds by Return and Risk Levels
Publication TypeWorking Paper
Year of Publication2008
AuthorsF. Lisi, E. Otranto
Keywordscluster, distance, garch models, risk

Mutual funds classifications, often made by rating agencies, are very common and sometimes criticized. In this work, a three-step statistical procedure for mutual funds classification is proposed. In the first step time series funds are characterized in terms of returns. In the second step, a clustering analysis is performed in order to obtain classes of 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 given.

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