Do Winner Funds Repeat? An Empirical Exploration with Indian Equity Mutual Funds
Author | : Soumya Guha Deb |
Publisher | : |
Total Pages | : 35 |
Release | : 2014 |
Genre | : |
ISBN | : |
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The financial media has traditionally devoted considerable space to the identification of funds with superior 'track records' and those of 'winner funds' repeating their performance. This paper attempts to test this important issue of 'persistence' in performance of equity mutual funds in India ,w.r.t seven different performance indicators viz. 'raw return', 'excess return over benchmark', 'Treynor's ratio', 'Sharpe's ratio', 'Jensen's alpha', 'M2 measure' and 'appraisal ratio' which cover absolute, relative and risk adjusted performance aspects of funds. We used a regression based approach and a contingency table approach for testing the persistence over time horizons of variable lengths and further substantiated our results by a Spearman Rank Correlation Test. Using monthly return data of a sample of ninety six equity mutual fund schemes belonging primarily to two broad groups (Growth Funds and ELSS funds), during January 2000 to June 2005, our analysis shows moderate evidence of persistence. We find that persistence is more evident in Growth Funds than in ELSS funds. With shorter time horizons like three months or six months a lot of cases of 'reversals' are observed but if the time horizon is one year, persistence exhibited is quite prominent particularly for the growth funds. Again when the time horizon is increased beyond one year evidence of persistence weakens which gives the impression of efficiency of the market in the long run. On the whole it seems that past performance is hardly a reliable guide for future performance, particularly over a very short or very long time horizon.