Analytical Behavioral Computing Approach to Asset and Risk Management

by Dr. Ye

1. Introduction and Definition:

A (mutual/hedge) fund's past performance (e.g., in Sharpe ratio, Ye 2011, pp204) may not predict its future performance due to market volatility. For example, some funds generally outperforming market indexes under-performed the market largely in 2011 (empirical reference). Thus a fund's performance may not persist over time due to component volatility.
Yet the attributes of a fund manager's decision style may be persistent and stable over time. We create a novel approach with algos to assess the persistent behavioral attributes (i.e., the decision styles) of fund managers, including decision bias, sensitivity to opportunities, and performance in a ROC (receiver operating characteristic) space.
As the behavioral attributes of fund managers will be analyzed quantitatively and market volatility (risk) is thus controlled, this novel approach is labeled as the analytical behavioral computing (ABC) approach for risk management and fund performance (asset) management. ABC entails a conceptual framework (see Section 3) and a set of analytical algos (see Section 4). ABC will be part of the behavioral finance literature and practice that incorporate analytical behavioral computing approaches to asset management.
The ABC approach gives rise to a new data model and database with fund expense ratio, return, volatility (publicly available data), and dprime, bias, and ROC data (derived from algos). As a result, the database outputs reports on top 50 funds and fund managers from over 18000 funds.

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For section 2-7, email info@yeswici.com

8. Preliminary Output - Top 50 Funds in 2012
Rydex Biotechnology A
Wells Fargo Adv Growth Fund C
Saratoga Adv Tr-Health & Biotech A
Neuberger Berman Genesis Instl
Neuberger Berman Genesis Inv
Neuberger Berman Genesis Tr
RS Select Growth A
Saratoga Adv Tr-Health & Biotech B
PIMCO Convertible Fund D
PIMCO Convertible Fund A
PIMCO Convertible Fund C
FBR Gas Utility Index Fund
SouthernSun Small Cap Inv
Fidelity Select Medical Delivery
Delaware SMID Cap Growth I
Williston Basin/Mid-NAmer Stock A
Prudential Jennison Health Scien Z
Delaware SMID Cap Growth A
Prudential Jennison Health Scien A
Delaware SMID Cap Growth R
T. Rowe Price Health Sciences
JHT Health Sciences Trust Ser I
Delaware Pooled Focus Smid-Cap Gr E
Delaware SMID Cap Growth C
Delaware SMID Cap Growth B
Prudential Jennison Health Scien B
Prudential Jennison Health Scien C
Invesco Small Companies Inst
Invesco Small Companies A
Invesco Small Companies R
Wells Fargo Adv Growth Fund Inst
Rydex Consumer Products Inv
Wells Fargo Adv Growth Fund Adm
Fidelity Select Pharmaceuticals
Rydex Consumer Products A
Delaware Select Growth I
Invesco Small Companies B
Invesco Small Companies C
Vanguard Consumer Staples Index Adm
Wells Fargo Adv Growth Fund A
Rydex Consumer Products Adv
Live Oak Health Sciences
Wells Fargo Adv Growth Fund Inv
Delaware Select Growth A
T. Rowe Price New Horizons
Delaware Select Growth R
Saratoga Adv Tr-Health & Biotech I
Rydex Biotechnology Inv
Rydex Consumer Products C
Conestoga Cap Adv Small-Cap Fund