Classifying Italian Pension Funds via GARCH Distance

MATHEMATICAL AND STATISTICAL METHODS FOR INSURANCE AND FINANCE, C. Perna and M. Sibillo, eds., Springer, 2007

Posted: 27 Jul 2011  

Edoardo Otranto

University of Messina; Universita di Cagliari - Centre for North South Economic Research (CRENOS)

Alessandro Trudda

Università degli Studi di Sassari

Date Written: 2007

Abstract

The adoption of pension funds in the Italian social security policy has increased the offer of several investment funds. Workers have to decide what kind of investment to perform, the funds having a different composition and a subsequently different degree of risk. In this paper we propose the use of a distance between GARCH models as a measure of different structure of volatility of some funds, with the purpose of classifying a set of funds. Furthermore we extend the idea of equivalence between ARMA models to the GARCH case to verify the equality of the risk of each couple of funds. An application on thirteen Italian funds and fund indices is performed.

Keywords: Agglomerative algorithm, Cluster analysis, GARCH models, Pension funds, Risk profile

JEL Classification: C22, G23

Suggested Citation

Otranto, Edoardo and Trudda, Alessandro, Classifying Italian Pension Funds via GARCH Distance (2007). MATHEMATICAL AND STATISTICAL METHODS FOR INSURANCE AND FINANCE, C. Perna and M. Sibillo, eds., Springer, 2007. Available at SSRN: https://ssrn.com/abstract=1895464

Edoardo Otranto

University of Messina ( email )

Piazza Pugliatti, 1
Messina, 98122
Italy

Universita di Cagliari - Centre for North South Economic Research (CRENOS) ( email )

V. S. Ignazio 78
Cagliari, 09124
Italy

Alessandro Trudda (Contact Author)

Università degli Studi di Sassari ( email )

Piazza Universita
Sassari, 07100
Italy

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