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Are the log-returns of Italian open-end mutual funds normally distributed? A risk assessment perspective

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Abstract

In this article we conduct an empirical analysis of daily log-returns of Italian open-end mutual funds and their respective benchmarks in the period from February 2007 to May 2015. First, we estimate the classical normal-based model on the log-returns of a large set of funds. Then we compare it with five models allowing for asymmetry and (or) heavy tails. We empirically assess that both the value at risk and the average value at risk are model-dependent and we show that the difference between models should be taken into consideration in the evaluation of risk measures.

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Notes

  1. In Italy open-end mutual funds are established and managed by asset management companies supervised by the Bank of Italy in cooperation with the Companies and Stock Exchange Commission. In particular, the Bank of Italy receives supervisory and statistical reports regarding all the funds established by Italian management companies (for more detailed information on the characteristics of these data see Banca d’Italia, 2015b).

  2. The percentage difference %Δ of b with respect to a is defined as %Δ=1−b/a.

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Acknowledgements

The author is grateful to M. Carofiglio, D. Dichter, G. Ferrero, C. Gola, L.F. Signorini, L. Zucchelli for their comments and suggestions on a previous version of this article. The author also gratefully acknowledges two anonymous referees for their help in improving the article. The views expressed in the article are those of the author and do not involve the responsibility of the Bank of Italy. The author bears the sole responsibility for the contents of the article.

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Authors and Affiliations

  1. Macroprudential Analysis Division, Bank of Italy, Rome, 00184, Italy

    Michele Leonardo Bianchi

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  1. Michele Leonardo Bianchi
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1has been working since 2008 at the Banca d’Italia and he is currently a researcher/supervisor in the Macroprudential Analysis Division of the Regulation and Macroprudential Analysis Directorate. He holds a degree in Mathematics from the University of Pisa (2005) and a PhD in Computational methods for economic and financial decisions and forecasting from the University of Bergamo (2009). He has published a book and several articles on quantitative finance, financial econometrics, probability theory and non-linear optimization, and he has taught university and professional courses in quantitative finance.

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Leonardo Bianchi, M. Are the log-returns of Italian open-end mutual funds normally distributed? A risk assessment perspective. J Asset Manag 16, 437–449 (2015). https://doi.org/10.1057/jam.2015.30

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  • DOI: https://doi.org/10.1057/jam.2015.30

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