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Machine Learning Fund Categorizations

Author

Listed:
  • Dhagash Mehta
  • Dhruv Desai
  • Jithin Pradeep

Abstract

Given the surge in popularity of mutual funds (including exchange-traded funds (ETFs)) as a diversified financial investment, a vast variety of mutual funds from various investment management firms and diversification strategies have become available in the market. Identifying similar mutual funds among such a wide landscape of mutual funds has become more important than ever because of many applications ranging from sales and marketing to portfolio replication, portfolio diversification and tax loss harvesting. The current best method is data-vendor provided categorization which usually relies on curation by human experts with the help of available data. In this work, we establish that an industry wide well-regarded categorization system is learnable using machine learning and largely reproducible, and in turn constructing a truly data-driven categorization. We discuss the intellectual challenges in learning this man-made system, our results and their implications.

Suggested Citation

  • Dhagash Mehta & Dhruv Desai & Jithin Pradeep, 2020. "Machine Learning Fund Categorizations," Papers 2006.00123, arXiv.org.
    • Handle: RePEc:arx:papers:2006.00123
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    References listed on IDEAS

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    3. Athanasios Orphanides, "undated". "Compensation Incentives and Risk Taking Behavior: Evidence from Mutual Funds," Finance and Economics Discussion Series 1996-21, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
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    7. Moreno, David & Marco, Paulina & Olmeda, Ignacio, 2006. "Self-organizing maps could improve the classification of Spanish mutual funds," European Journal of Operational Research, Elsevier, vol. 174(2), pages 1039-1054, October.
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    Cited by:

    1. Victor DeMiguel & Javier Gil-Bazo & Francisco J. Nogales & André A. P. Santos, 2021. "Can Machine Learning Help to Select Portfolios of Mutual Funds?," Working Papers 1245, Barcelona School of Economics.
    2. Vipul Satone & Dhruv Desai & Dhagash Mehta, 2021. "Fund2Vec: Mutual Funds Similarity using Graph Learning," Papers 2106.12987, arXiv.org.

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