2019- Working Papers: Finance, Accounting and Insurance

The article reviews measures for the examination of managed investments and implements these measures for provident funds (pension funds and advanced study funds) in Israel in 2007-2018 using monthly returns. The first set of measures is related to risks: standard deviation of returns, betas vs. various securities indices, as well as return variance that is not explained by various securities indices (specific variance). We divide the sample period into four sub-periods and find high persistence in risk measures between subsequent sub-periods. For example, the correlation between return standard deviation in subsequent sub-periods is 0.9. The second set of indicators relates to return level: accumulated return, average monthly return, the Sharpe measure (which is built from the series of returns minus the interest rate and divides the average of the series by its standard deviation) and the alpha measure (the fund’s average return minus the average return of a benchmark portfolio return which is defined using a regression). In contrast to the risk indices, there is a very low persistence in return level measures. For example, the correlation between alphas in subsequent periods is 0.04. The conclusion is that when choosing provident funds, risk indices can be used to assess future risks. On the other hand, in assessing the level of future returns, in practice it is not possible to rely on future yields. Therefore, it is important to take into account management fees, which affect future returns directly. It should be noted that the empirical examination relates to provident funds, and it is possible that in other types of investments (for example mutual funds) the persistence is different.