A Comment on the Risk Level Discriminatory Powers of the Wiesenberger Classifications

Abstract

purpose of this note is to demonstrate that risk measures (volatility) of mutual funds as provided by the portfolio models are not consistent with mutually exclusive categories as suggested by the Wiesenberger classifications in Investment Companies.' Researchers investigating the performance of mutual funds have tended to group the funds into classes based the Wiesenberger classifications. Table 1 contains such a grouping of funds found in Jensen and repeated in Sharpe comparing the Wiesenberger classifications and Jensen's risk measures.2 Sharpe has stated: The differences in volatility [,8 coefficients] as shown in . . . [table 1] are not due to chance alone. . . . [Table 1] provides a breakdown using classifications assigned by a major reference service [Wiesenberger] based the stated objectives of the funds. By and large mutual funds appear to do what they say they will do.3 Jensen in referring to table 1 also concluded that on the average there is some correspondence between the Wiesenberger classification and our measure of risk.4 classifications used in table 1 were those in existence at the time of the Jensen study and have since been expanded, as can be found in the latest edition of Wiesenberger.5 remainder of this research uses only the classifications which were in existence at the time of the Jensen study and upon which the groupings in table 1 are based. This note demonstrates that differences in the average volatility of the mutual fund classifications are statistically insignificant except for two broad categories which may be termed growth and no growth. Any additional classes as suggested by table 1 are strictly arbitrary. next section gives a brief description of the /8 measures as