To read the full version of this content please select one of the options below:

An innovative approach to mitigating horizon mismatch: A multi-resolution investigation of ELSS

Anindya Chakrabarty (Symbiosis Institute of Operations Management, Nasik, India)
Rameshwar Dubey (Symbiosis Institute of Operations Management, Nasik, India)
Anupam De (Symbiosis Institute of Operations Management, Nasik, India)

International Journal of Innovation Science

ISSN: 1757-2223

Article publication date: 6 June 2016

Abstract

Purpose

This paper aims to propose an innovative approach to risk measurement for the abolition of selection bias arising from the specious selection of different horizons for investment and risk computation of equity-linked-saving schemes (ELSS).

Design/methodology/approach

ELSS has a lock-in period of three years, but shorter horizons’ (daily/weekly/monthly) return data are preferred, in practice, for risk computation. This results in horizon mismatch. This paper studies the consequences of this mismatch and provides a noble solution to diminish its effect on investors’ decision-making. To accomplish this objective, the paper uses an innovative methodology, maximal overlap discrete wavelet transformation, to segregate the price movements across different horizons. Risk across all horizons is measured using Cornish-Fisher expected shortfall and Cornish-Fisher value-at-risk methods.

Findings

The degree of consistency of risk-based rankings across horizons is examined by means of the Spearman and Kendall’s rank correlation tests. The risk-based ranking of ELSS is found to vary significantly with the change in investor’s horizon. Precisely, the rankings formulated using daily net asset values are significantly different from the rankings developed using fluctuations over longer horizons (two-four and four-eight years).

Originality/value

This finding indicates that the ranking exercise may mislead investors if horizon correction is not done while developing such rankings.

Keywords

Citation

Chakrabarty, A., Dubey, R. and De, A. (2016), "An innovative approach to mitigating horizon mismatch: A multi-resolution investigation of ELSS", International Journal of Innovation Science, Vol. 8 No. 2, pp. 161-180. https://doi.org/10.1108/IJIS-06-2016-011

Publisher

:

Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited