Effectiveness and risk measures of open-ended mutual funds

Key words: rate of return, Sharpe ratio, information ratio, omega ratio, Sortino ratio, stock mutual fund, balanced mutual fund.

The work discusses the different measures of effectiveness and risk which are used to analyze the performance of the open-end mutual funds. The most commonly used and simplest measure is the rate of return which can be analyzed in different periods and gives the possibility to compare the results with the entire market measured by banchmark. But rate of return does not inform about risk and effectiveness, just measures the profit. In order to assess the risk of mutual funds one can  use  Information Ratio  and the Sharpe ratio. The performance measures are Omega and the Sortino ratios which are also exploited in presented investigations. The work analyzes the theoretical and practical aspects of these coefficients and it compares ratings of mutual funds based on them. Authors takes in to account periods of bullish (years: 2003-2007) and bearish (2007-2011) market. The main interest is concerned on stock mutual funds but some remarks are applied to balanced funds.