School of Management Studies

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Analysing the performance of managed funds using the wavelet multiscaling method

( 2008-07-01) In, Francis ; Kim, Sangbae ; Marisetty, Vijaya ; Faff, Robert

We propose a new approach for investigating the performance of managed funds using wavelet analysis and apply it to an Australian dataset. This method, applied to a multihorizon Sharpe ratio, shows that the wavelet variance at the short scale is higher than that of the longer scale, implying that an investor with a short investment horizon has to respond to every fluctuation in the realized returns, while for an investor with a much longer horizon, the long-run risk associated with unknown expected returns is not as important as the short-run risk. Using multihorizon Sharpe ratios of six groups of managed funds, we find that none of the fund groups are dominant over all time scales. © 2007 Springer Science+Business Media, LLC.