Srusti Management Review (Jun 2017)
Do Mutual Funds Persist the Performance : Good or Bad?
Abstract
This research makes an attempt to determine persistence in the mutual fund returns. i.e. an effort has been made to determine the presence or absence of the ability of the mutual fund managers to select the right type of stock at the right time. The study utilizes a few selected techniques of performance evaluation on the sample of 36 equity diversified schemes of Indian mutual fund houses. The period of the study is from January 2001 till December 2014.The benchmark used for the study is S&P CNX NIFTY. Grinblatt and Titman’s persistence methodology is used by dividing the sample tenure of one hundred and sixty-eight months in two equal halves. The regression incorporating the alpha values generated by the Jensen’s Alpha model and beta values generated by Treynor-Mazuy as well as Merton-Henriksson model is run. The Jensen’s model, Treynor-Mazuy and Merton-Henriksson models do not give statistically significant evidence of persistence in stock selection ability which is evident from t-statistics value of 0.13923424, -0.342969074 and 0.76215211 respectively of alphas of the models at 5 per cent level of significance. The results of all the models are in sync with each other as well as the previous studies. The empirical results of Treynor-Mazuy and Merton-Henriksson models show no persistence in timing ability of the fund managers. The conclusion has come from t-statistics values of -0.725882517, -1.221886878 of beta of Treynor-Mazuy and Merton-Henriksson models respectively which is not significant at 5 per cent level of significance. But by expanding the level of significance to 10 per cent, the persistence in perverse market timing of the fund managers gets focused on. The findings of the study are consistent with existing studies done in emerging as well as the mature markets. Overall the evidence is in conformity with the efficient market hypothesis. In this study, the evaluation of persistence in fund performance has been studied not only owing to selectivity skills but also market timing. The results have implications for hedge funds and other managed portfolios that consistently follow “fund of funds” strategy in pursuit of extra-normal returns.
