The risk level discriminatory power of mutual fund investment objectives: Additional evidence

Are the ASISA Standards with Respect to Unit Trust Classification Representative of Homogeneous Risk Classes?

“…We used 3 calendar years of historical returns as the minimum length of the time series. This followed the works of Boggle (1970Boggle ( , 1991, Carlson (1970), McDonald (1974, Klemkosky (1976), Ippolito (1989), Grinblatt and Titman (1989b;1993), Najand and Prather (1999) and Prather (2012).…”

“…The methodology follows Klemkosky (1976), Najand and Prather (1999) and Prather (2012). The critical value of the F statistic ( ) * F is computed using Equation (3) ( ) ( ) ( )…”

“…We utilized the Hartley test, emulating the methodology employed by Najand and Prather (1999) and Prather (2012), to determine whether the differences in variance are significant. Formally, Hartley is used to test: : not all are equal σ H Equation (4) David (1952).…”

“…We emulated the methodology of Najand and Prather (1999). 28 linear contrasts were examined to learn whether the equity unit groups were mutually exclusive.…”

“…If, for example, an investor was attempting to construct a style-diversified portfolio of unit trusts based on this information, he may end up with a misclassified portfolio, which could eventually skew his risk and compromise his investment strategy. Najand and Prather (1999) showed that if the risks are heterogeneous within an investment group, the practice of comparing returns is not optimal. Prather (2012) further concluded that if the risks of the funds within an investment objective group differ significantly, comparing returns alone is insufficient to make utility maximizing investment decisions.…”