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Chance Constrained Programming Approach to Empirical Analyses of Mutual Fund Investment Strategies *
Author(s) -
Brockett Patrick L.,
Charnes Abraham,
Cooper William W.,
Kwon KuHyuk,
Ruefli Timothy W.
Publication year - 1992
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1992.tb00396.x
Subject(s) - risk–return spectrum , ex ante , manager of managers fund , economics , investment (military) , mutual fund , investment strategy , rate of return , actuarial science , closed end fund , business , financial economics , microeconomics , finance , political science , macroeconomics , portfolio , profit (economics) , politics , law , incentive
Chance constrained programming concepts are used to formalize risk and return relations which are then modeled for use in an empirical study of mutual fund behavior during the period 1984 through 1988. The publicly announced strategies of individual funds are used to form ex ante risk classifications which are employed in examining ex post performance. Negative relations between risk and return held in every year of the period studied. The bearing of these negative risk‐return findings for the Bowman paradox, as studied in the strategic management literature, are thus extended from the industrial firms studied by Bowman (and others) and shown to be present even in these investment oriented mutual funds in each of the years of the great bull market from 1984 through 1988. Finally, our use of chance constrained programming enables us to separate risk from return behavior and evaluate their relative strengths as sources of these negative relations, which are found to be more in the returns than the risks.