Methods of Assessing Investments' Effectivity on Financial Markets

This paper is devoted to the investigation of the applicability of risk-adjusted measures as indicators for assessment of investment effectivity on mutual funds market. In practice, a private investor uses these coefficients for the evaluation of funds management quality. However, its variability makes agents think of which indicator should be used for ranking funds. In this paper I analyze the dependence of funds’ rankings, compiled by seventeen performance measures. It’s reported that these rankings have a relatively high and significant rank correlation which is sustainable during a long period of time. Moreover, these methods choose approximately the same securities which have shown a positive or negative performance (those located in the first and last quantiles). This fact is helpful for a private investor who is eager to have a long position for the most attractive funds and a short position for the least perspective securities and use a lower number of performance metrics. The next part of the paper is devoted to the application of such performance measures for portfolio construction with a short investment period. It may be noticed that, even though some portfolios constructed by typical performance measures (i.e. a cumulative return or Sharpe ratio) display a higher cumulative return, alternative portfolios demonstrate a higher risk-adjusted performance. Taking these points into consideration, the author concludes that it does not matter which coefficient to use during a relatively short investment horizon beacause all portfolios have a similar average return and standard deviation.