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Stability in mutual fund performance rankings: A new proposal

Author

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  • Grau-Carles, Pilar
  • Doncel, Luis Miguel
  • Sainz, Jorge

Abstract

Market investors use financial performance measures to determine, often ex post, fund managers' investment ability and identify the fund managers who are best suited to managing their investments. The Sharpe ratio is the principal financial performance measure, although it has certain weaknesses. To correct for the Sharpe ratio's shortcomings, researchers and practitioners have developed alternative measures. This study investigated the most widely used performance measures. Their results were evaluated by ranking different investments. The analysis showed that the choice of measure affects the ranking of investments. The paper presents a new method that provides a stable ranking based on the notion of stability selection. This method was applied to daily prices of UK investment funds. The method enables identification of the top stable funds. The final ranking can help investors evaluate fund managers' ability using a combination of performance measures.

Suggested Citation

  • Grau-Carles, Pilar & Doncel, Luis Miguel & Sainz, Jorge, 2019. "Stability in mutual fund performance rankings: A new proposal," International Review of Economics & Finance, Elsevier, vol. 61(C), pages 337-346.
    • Handle: RePEc:eee:reveco:v:61:y:2019:i:c:p:337-346
    DOI: 10.1016/j.iref.2018.01.018
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    Citations

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    Cited by:

    1. Kerstens, Kristiaan & Mazza, Paolo & Ren, Tiantian & Van de Woestyne, Ignace, 2022. "Multi-Time and Multi-Moment Nonparametric Frontier-Based Fund Rating: Proposal and Buy-and-Hold Backtesting Strategy," Omega, Elsevier, vol. 113(C).
    2. Ying-Sing LIU & Liza LEE, 2022. "Are Modifications in the ETF's Investment Performance and Risks during the COVID-19 Pandemic Event?," Review of Applied Socio-Economic Research, Pro Global Science Association, vol. 23(1), pages 05-17, June.
    3. Jin Yuan & Xianghui Yuan, 2023. "A Comprehensive Method for Ranking Mutual Fund Performance," SAGE Open, , vol. 13(2), pages 21582440231, May.

    More about this item

    Keywords

    Stability; Mutual fund performance; Rankings;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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