The Scaling Property of Randomness: the Impact of Reporting Frequency on the Perceived Performance of Investment Funds

Abstract

This paper reports on the life-time annual returns and volatility of the largest Australian five-star rated investment funds. Using this actual performance data, we model the likelihood that an investor would have viewed the actual performance as either positive or negative based upon the frequency of the performance reporting. By examining the scaling properties of the random returns generated by the investment, we find that the probability of an investor viewing the performance of their investment as successful, rather than unsuccessful, can be influenced by the time intervals under which the performance is reported. The findings from this research have direct implications to Australian investment managers in setting policies regarding the provisions of real-time and periodic performance reporting to their investors.

Keywords: Investment funds, performance reporting , random returns, investment returns

JEL Classification: G23, G29, G20