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Fractile Graphical Analysis in Finance: A New Perspective with Applications

Author

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  • Anil K. Bera

    (Department of Economics, University of Illinois at Urbana-Champaign, 225E David Kinley Hall, 1407 W. Gregory Dr., Urbana, IL 61801, USA)

  • Aurobindo Ghosh

    (Lee Kong Chian School of Business, Singapore Management University, 50 Stamford Road, #04-01, Singapore 178899, Singapore)

Abstract

Fractile Graphical Analysis (FGA) was proposed by Prasanta Chandra Mahalanobis in 1961 as a method for comparing two distributions at two different points (of time or space) controlling for the rank of a covariate through fractile groups. We use bootstrap techniques to formalize the heuristic method used by Mahalanobis for approximating the standard error of the dependent variable using fractile graphs from two independently selected “interpenetrating network of subsamples.” We highlight the potential and revisit this underutilized technique of FGA with a historical perspective. We explore a new non-parametric regression method called Fractile Regression where we condition on the ranks of the covariate and compare it with existing regression techniques. We apply this method to compare mutual fund inflow distributions after conditioning on ranks or fractiles of pre-tax and post-tax returns and compare distributions of private and public equity returns after controlling for fractiles of assets under management size using the two sample smooth test.

Suggested Citation

  • Anil K. Bera & Aurobindo Ghosh, 2022. "Fractile Graphical Analysis in Finance: A New Perspective with Applications," JRFM, MDPI, vol. 15(9), pages 1-20, September.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:9:p:412-:d:918493
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    References listed on IDEAS

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    2. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    3. Bergstresser, Daniel & Poterba, James, 2002. "Do after-tax returns affect mutual fund inflows?," Journal of Financial Economics, Elsevier, vol. 63(3), pages 381-414, March.
    4. Gompers, Paul & Lerner, Josh, 2000. "Money chasing deals? The impact of fund inflows on private equity valuation," Journal of Financial Economics, Elsevier, vol. 55(2), pages 281-325, February.
    5. Bera, Anil K. & Ghosh, Aurobindo & Xiao, Zhijie, 2013. "A Smooth Test For The Equality Of Distributions," Econometric Theory, Cambridge University Press, vol. 29(2), pages 419-446, April.
    6. Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September.
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