Clustering Mutual Funds by Return and Risk Levels

TitleClustering Mutual Funds by Return and Risk Levels
Publication TypeWorking Paper
Year of Publication2008
AuthorsLisi, F, Otranto, E
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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