Mutual fund risk-return profiles: A novel use of triangulation
Abstract
This paper triangulates with ethnographic content analysis and time series data to discern risk-return profiles for active equity mutual funds. The paper identifies and establishes associations between a variety of investment objectives and risk factors disclosed or otherwise encoded in the prospectus and annual report, and compares risk factors appearing in these documents with levels of risk observed in the time series data. The findings are largely consistent with the predictions of portfolio management models discussed in the literature; however, the triangulation process also reveals critical gaps between what is disclosed in each of the primary narratives and what is observed in the secondary data, ie between what is said and what is done. Risk exposures measured ex post are not always communicated in the documents. For example, the study finds instances of undisclosed pseudo-industry risk in the form of concentrated technology holdings which may reflect a violation of prospectus covenants. The paper also finds elevated levels of residual risk in the secondary data which may be indicative of benchmark gaming.
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Author's Biography
Henry I. Silverman is an assistant professor of finance at Roosevelt University in Chicago and director of an asset management firm based in London. He lived in the UK for a number of years where he completed his doctorate and taught finance and risk management at the University of London for executives at JP Morgan Chase. Engaged in research on investment companies, their return objectives, investment strategies and risk-taking behaviour, Dr Silverman has conducted numerous interviews with US and European fund managers and performed analytical work on their disclosure practices and documents. Dr Silverman’s findings were presented to the Chairman of the British Government’s Financial Ombudsman Service in 2003. Dr Silverman is author of the academic text ‘Theory and Practice of Fund Management’ and a member of the Financial Management Association as well as the New York Society of Security Analysts.
Citation
Silverman, Henry I. (2008, March 1). Mutual fund risk-return profiles: A novel use of triangulation. In the Journal of Risk Management in Financial Institutions, Volume 1, Issue 2. https://doi.org/10.69554/YLBE2674.
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