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Persistence of Mutual Fund Performance in India

The document discusses analyzing the persistence of mutual fund performance in India. It provides motivation for studying whether past performance can predict future returns. The objective is to analyze equity fund performance using risk-adjusted measures and regressing past performance on future returns over 1, 2, and 3 year periods. The methodology section outlines the various formulas and techniques used, including Sharpe ratio, Treynor ratio, Jensen's alpha, and others. Literature review finds mixed evidence from international and Indian studies on whether past performance persists. Sample fund data is analyzed over rolling periods and performance measures are regressed on future returns to examine predictability.

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Persistence of Mutual Fund Performance in India Summer Project 2012
Motivation of the study-1 • MFs offer diversification, expertise and pooling • MFs offer small investors access to investment with a small amount of capital • At any point of time, there exists a large no. of scheme to choose from • Question is: How to choose the scheme (s), specially by un-initiated investors • It’s a common practice in India to choose the MF scheme that has exhibited the best past performance • Over the past 1/2/3 years • A second factor is about ability of fund managers
Motivation of the study-2 • A fund manager may be able to generate abnormal return from her portfolio during a particular period • This may be due to certain coincidences • E.g., chance selection of a promising stock or sector • However, is the fund manager capable of repeating the performance • In other words, does past performance is any indicator of future performance? • Empirical evidence from the US and other markets show that fund managers cannot beat the market • Persistently over long-run • Wherein a passive investment is more efficient
Indian MF Industry • Evolution • 1963 - Unit Trust of India • 1987 – LIC and General Insurance Corporation, PSBs are allowed to launch • 1993 – Foreign and private players were allowed • AMFI reported Rs.47,004 crores AUM. • In 2012, there are 42 AMCs with AUM of Rs.692,705 crores • A slight decline after entry-load ban was imposed w.e.f. 1st August 2009 (from around Rs.8 lakh crores).
Objective • Analyze performance of the equity diversified mutual funds deploying standard measures risk-adjusted performance. • Past 36-months data were used to compute performance measure • Regressed on following 12-, 24- and 36-month performances • Starting from April 1997 (first complete 36-month past performance window) • Rolling the process forward by a month until April 2009 • Thus a maximum of sets of 180 observations for a scheme • Match with future average return and the return by the buy and hold strategy of the investor over the next 1year, 2years & 3years
Data April 1994 – March 2012
Net Asset Value • The period covers the different bull and bear phases of the Indian equity market. • The monthly closing NAV of 242 equity diversified mutual funds collected from the websites of AMFI (Association of Mutual Funds in India) and from the smctradeonline.com. • For the final analysis only 169 mutual fund schemes have been taken into account for which the data was available for at least 72 months (past 36 & future 36 months) i.e., • funds launched up to March 2008.
Benchmark and T-Bill • The monthly closing price data of each index is collected from the websites of BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). • The monthly T-Bill returns (proxy for risk-free rate) data were collected from the Handbook of Statistics on Indian Economy, various issues, published by RBI.
Sample AMC Ownership Number of AMC Number of Schemes Private Indian 12 64 Indian Joint Venture 9 57 Foreign 9 29 Public 2 19
Methodology Formulae and Techniques
NAV Return • The monthly return of each fund has been calculated from the monthly closing NAV by using the following formula: Rt+1 = NAVt+1 - NAVt NAVt where Rt+1 = Return of the mutual over month ‘t+1’. NAVt = Closing NAV of the month ‘t’. NAVt+1 = Closing NAV of the month ‘t+1’.
Benchmark Return • The monthly return of all the 15 indices has been calculated using the following formula where RB stands for the return of the benchmark : RB.t+1 = Pt+1 - Pt Pt where RB.t+1 = Return of the benchmark over the month ‘t’ Pt = Closing price of the month ‘t’ Pt+1 = Closing price of the month ‘t+1’
Sharpe Ratio • The most commonly used measure of risk adjusted performance is the Sharpe ratio which measures the fund’s excess return per unit of its risk • Given that Rp = Return of the portfolio (Mutual Fund) Rf = Risk free rate of return (T-Bill) ϬP = Standard dev. of the portfolio return P fP RR RatiosSharpe   _'
Security Market Line • Security Market Line (from CAPM) represents the expected total return of every security or portfolio i as a linear function of the return of the market portfolio m : Ei = Rf + βi [Em - Rf ] where Ei ≡ E[Ri] denotes the unconditional continuous expected return of the portfolio I βi = cov(Ri , Rm) is the beta of the portfolio i. ϭ2(Rm) • This equilibrium relation corresponds to the market model rit = αi + βirm + ϵit , where ri = Ri – Rf denotes excess return on the portfolio i.
Jensen’s Alpha • Total risk is captured by ϭ • Consists of systematic risk (explained by market index) • And capture by beta (β) • And non-systematic risk (not explained by the CAPM regression) • The intercept term for a stock should be zero theoretically • And is indeed so for most individual stocks empirically • Jensen proposed that the intercept for an actively- managed portfolio should be a performance of the manager • A measure of how much additional return a manager can generate over the benchmark • Without exceeding the systematic risk of the benchmark
Treynor Ratio & Information Ratio • We don’t directly use Jensen’s alpha here (thoough we computed) for reasons explained later • The Treynor Ratio (TR) is the ratio of Jensen’s alpha over the portfolio beta • Another measure deployed here is the Information ratio, which is Jensen’s alpha per unit of non-systematic risk of the portfolio (measured by the standard deviation of the market model residuals)   ˆ ˆ TR )(ˆ ˆ   IR
Coefficient of Variation • Since none of the above measures takes into account the benchmark, we deploy another measure • Excess of the return per unit of total risk of the portfolio over that of th benchmark: CR = Rp/Ϭp - Rb/Ϭb where Rp = Return of the portfolio (Mutual Fund) Rb = Return of the benchmark Ϭp = Standard deviation of return of portfolio Ϭb = Standard deviation of return of benchmark
A Sample Table Average of monthly returns - R_p - R_f Average of monthly returns - R_p - R_f BAHR - Portfolio - Benchmark Past Performance Measure Future Returns Sche me Date Sharp e IR TR Coeff_Vrar Fut1Y Fut2Y Fut3Y Fut1Y Fut2Y Fut3Y Fut1Y Fut2Y Fut3Y Birla Sun Life Asset Alloca tion Aggre ssive 31- Mar- 2007 0.358 0.339 -2.620 0.116 0.007 - 0.008 23 0.016 001 0.009 045 0.004 998 0.015 426 - 0.103 6 0.063 3 0.061 0 30- Apr- 2007 0.369 0.349 -3.286 0.112 0.006 627 - 0.005 2 0.015 861 0.005 626 - 0.012 17 - 0.001 17 - 0.128 3 0.061 7 0.073 0 31- May- 2007 0.539 951 0.477 031 - 3.899 63 0.278 991 0.000 516 0.002 539 0.015 677 0.003 476 - 0.007 24 0.000 164 - 0.077 4 0.047 7 0.073 4
Literature Review
International Fund Market • Grinblatt and Titman (1992), Carhart (1994), Sharpe(1995) among others, provided evidence that confirmed the predictability of future performance by past performance – returns persists • Elton, Gruber and Blake (1996) reported that the past carries the information about the future performance of the funds and they highlighted that both the 1 year and 3 year alphas convey the future information. • Michael Stutzer, on the contrary, observed that the fund managers who can beat the benchmark for the long run surprisingly still have significant probability of underperforming • which extends over a long period of time.
Indian Evidence • A sample of 50 Indian mutual fund was analyzed over 26 months by Roy and Bhattacharjee found that though in short term the mutual funds were able to generate above normal return. • Deb, Banerjee and Chakrabarti observed that on an average fund managers have not been able to beat their style benchmark. • Analysis of open ended equity mutual fund schemes indicate that the performance of majority of sample was not significantly related to their market movements during the study period.
• Managerial Ability • Dey, Yi Wang and Yexiao Xu (2001) highlighted that the fund managers may possess superior stock selection skills • Deb, Banerjee and Chakrabarti (2007) found very little evidence of market timing skill of fund managers though their stock selection ability was decent enough to produce good returns from the market. • Bear Market • Dr. S Narayan Rao observed that the fund managers were able to diversify the risk and even managed to give returns greater than risk free return. • But the debt funds were ultimate winners
Calculations Performance Measure and Returns
Past Performance • The performance measures such as Sharpe, IR, Treynor, and CR for each scheme has been calculated using the data of past 36 months and this is rolled up to March 2008. • Sharpe/IR/Treynor/CR • April 1997 Apr 94 – Mar 97 • Sharpe/IR/Treynor/CR • May 1997 May 94 – Apr 97 Continued… Till March 2008
Future Performance • The future performance measures were computed for the next 1 year, 2years & 3 years has using following indicators: • Future returns : 1. Rp – Rf 2. Rp – Rb 3. Buy and Hold return over its benchmark
Results Regression
Example - Morgan Stanley Growth Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0454 0.0000 0.0140 0.0000 0.0901 0.0000 IR Ratio -0.0254 0.0651 0.0091 0.0000 0.0144 0.0651 Treynor -1.0561 0.0028 0.0106 0.0000 0.0464 0.0028 Coeff_Var -0.0049 0.8992 0.0091 0.0001 -0.0059 0.8992
Example - Morgan Stanley Growth Future Performanc e Coefficient Intercept Adjusted Significanc e Value p-value Value p-value R2 F-Statistic Sharpe -0.0395 0.0000 0.0146 0.0000 0.1794 0.0000 IR Ratio -0.0238 0.0087 0.0103 0.0000 0.0374 0.0087 Treynor -1.4222 0.0000 0.0125 0.0000 0.2350 0.0000 Coeff_Var -0.0697 0.0052 0.0108 0.0000 0.0431 0.0052
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe 0.0145 0.0000 0.0137 0.0000 0.1159 0.0000 IR Ratio 0.0239 0.0000 0.0146 0.0000 0.1398 0.0000 Treynor 0.1167 0.3115 0.0152 0.0000 0.0002 0.3115 Coeff_Var 0.0220 0.0724 0.0152 0.0000 0.0156 0.0724 Example - Morgan Stanley Growth
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0201 0.0052 0.0094 0.0000 0.0401 0.0052 IR Ratio -0.0080 0.3677 0.0073 0.0000 -0.0011 0.3677 Treynor -0.3453 0.1312 0.0078 0.0000 0.0077 0.1312 Coeff_Var 0.0163 0.5132 0.0071 0.0000 -0.0034 0.5132 Example - Morgan Stanley Growth
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0193 0.0001 0.0100 0.0000 0.0910 0.0001 IR Ratio -0.0098 0.1099 0.0079 0.0000 0.0101 0.1099 Treynor -0.6296 0.0000 0.0089 0.0000 0.0975 0.0000 Coeff_Var -0.0244 0.1515 0.0081 0.0000 0.0069 0.1515 Example - Morgan Stanley Growth
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0171 0.0000 0.0096 0.0000 0.1149 0.0000 IR Ratio -0.0134 0.0284 0.0080 0.0000 0.0264 0.0284 Treynor -0.5173 0.0001 0.0087 0.0000 0.0948 0.0001 Coeff_Var -0.0234 0.1066 0.0079 0.0000 0.0112 0.1066 Example - Morgan Stanley Growth
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2833 0.0000 0.0437 0.0000 0.1750 0.0000 IR Ratio -0.1353 0.0301 0.0135 0.1719 0.0220 0.0301 Treynor -5.6421 0.0004 0.0213 0.0329 0.0665 0.0004 Coeff_Var -0.1917 0.2775 0.0149 0.1412 0.0011 0.2775 Example - Morgan Stanley Growth
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2265 0.0000 0.0312 0.0000 0.3003 0.0000 IR Ratio -0.0870 0.0323 0.0063 0.3321 0.0229 0.0323 Treynor -2.8130 0.0064 0.0100 0.1318 0.0409 0.0064 Coeff_Var -0.0460 0.6836 0.0058 0.3841 -0.0054 0.6836 Example - Morgan Stanley Growth
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.1459 0.0000 0.0134 0.0001 0.4480 0.0000 IR Ratio -0.0653 0.0157 -0.0020 0.6015 0.0334 0.0157 Treynor -0.7157 0.2338 -0.0028 0.4782 0.0030 0.2338 Coeff_Var 0.0699 0.2764 -0.0055 0.1550 0.0013 0.2764 Example - Morgan Stanley Growth
Main Results AMC Groupwise
Indian Joint Venture AMC Future Performanc e Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0341 0.0000 0.0152 0.0000 0.0585 0.0000 IR Ratio -0.0306 0.0000 0.0139 0.0000 0.0372 0.0000 Treynor -0.0002 0.3107 0.0087 0.0000 0.0000 0.3107 Coeff_Var 0.0131 -0.0090 0.0083 0.0000 0.0003 0.2455
Future Performanc e Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0228 0.0000 0.0160 0.0000 0.0930 0.0000 IR Ratio -0.0211 0.0000 0.0152 0.0000 0.0606 0.0000 Treynor 0.0000 0.6312 0.0109 0.0000 0.0002 0.6312 Coeff_Var 0.0017 0.8016 0.0108 0.0000 -0.0010 0.8016 Indian Joint Venture AMC
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe 0.0183 0.0000 0.0142 0.0000 0.2214 0.0000 IR Ratio 0.0223 0.0000 0.0137 0.0000 0.2288 0.0000 Treynor -0.0001 0.1229 0.0193 0.0000 0.0020 0.1229 Coeff_Var 0.0623 0.0000 0.0166 0.0000 0.3510 0.0000 Indian Joint Venture AMC
Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0172 0.0000 0.0105 0.0000 0.0315 0.0000 IR Ratio -0.0160 0.0000 0.0100 0.0000 0.0215 0.0000 Treynor -0.0002 0.0254 0.0072 0.0000 0.0033 0.0254 Coeff_Var 0.0145 0.0603 0.0068 0.0000 0.0021 0.0603 Indian Joint Venture AMC
Indian Joint Venture AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0118 0.0000 0.0109 0.0000 0.0346 0.0000 IR Ratio -0.0113 0.0000 0.0105 0.0000 0.0242 0.0000 Treynor 0.0000 0.4983 0.0082 0.0000 -0.0006 0.4983 Coeff_Var -0.0029 0.6125 0.0083 0.0000 -0.0008 0.6125
Indian Joint Venture AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0128 0.0000 0.0119 0.0000 0.0605 0.0000 IR Ratio -0.0132 0.0000 0.0000 0.0116 0.0449 0.0000 Treynor -0.0001 0.1026 0.0083 0.0000 0.0024 0.1026 Coeff_Var -0.0003 0.9579 0.0083 0.0000 -0.0014 0.9579
Indian Joint Venture AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0715 0.0000 0.0493 0.0000 0.0219 0.0000 IR Ratio -0.0684 0.0000 0.0473 0.0000 0.0157 0.0000 Treynor -0.0007 0.1459 0.0357 0.0000 0.0009 0.1459 Coeff_Var 0.0514 0.1804 0.0341 0.0000 0.0007 0.1804
Indian Joint Venture AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0898 0.0000 0.0588 0.0000 0.0775 0.0000 IR Ratio -0.0816 0.0000 0.0550 0.0000 0.0488 0.0000 Treynor -0.0001 0.8056 0.0383 0.0000 -0.0010 0.8056 Coeff_Var -0.0392 0.1776 0.0397 0.0000 0.0009 0.1776
Indian Joint Venture AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0979 0.0000 0.0647 0.0000 0.1358 0.0000 IR Ratio -0.1005 0.0000 0.0628 0.0000 0.0996 0.0000 Treynor 0.0002 0.5327 0.0377 0.0000 -0.0009 0.5327 Coeff_Var -0.0398 0.1385 0.0394 0.0000 0.0017 0.1385
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0250 0.0000 0.0178 0.0000 0.0323 0.0000 IR Ratio -0.0146 0.0004 0.0157 0.0000 0.0087 0.0004 Treynor 0.0001 0.7292 0.0128 0.0000 -0.0007 0.7292 Coeff_Var 0.0453 0.0000 0.0096 0.0000 0.0260 0.0000
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0198 0.0000 0.0197 0.0000 0.0570 0.0000 IR Ratio -0.0121 0.0000 0.0179 0.0000 0.0169 0.0000 Treynor 0.0003 0.1281 0.0152 0.0000 0.0012 0.1281 Coeff_Var 0.0304 0.0000 0.0128 0.0000 0.0341 0.0000
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe 0.0200 0.0000 0.0173 0.0000 0.1950 0.0000 IR Ratio 0.0291 0.0000 0.0153 0.0000 0.3249 0.0000 Treynor 0.0002 0.1483 0.0225 0.0000 0.0012 0.1483 Coeff_Var 0.0626 0.0000 0.0168 0.0000 0.4959 0.0000
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0127 0.0000 0.0117 0.0000 0.0194 0.0000 IR Ratio -0.0065 0.0155 0.0105 0.0000 0.0036 0.0155 Treynor -0.0001 0.5428 0.0092 0.0000 -0.0005 0.5428 Coeff_Var 0.0249 0.0000 0.0075 0.0000 0.0184 0.0000
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0106 0.0000 0.0128 0.0000 0.0321 0.0000 IR Ratio -0.0063 0.0012 0.0117 0.0000 0.0087 0.0012 Treynor 0.0001 0.6567 0.0104 0.0000 -0.0007 0.6567 Coeff_Var 0.0135 0.0001 0.0093 0.0000 0.0129 0.0001
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0122 0.0000 0.0139 0.0000 0.0645 0.0000 IR Ratio -0.0080 0.0000 0.0127 0.0000 0.0207 0.0000 Treynor -0.0002 0.1618 0.0108 0.0000 0.0011 0.1618 Coeff_Var 0.0137 0.0000 0.0095 0.0000 0.0202 0.0000
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2392 0.0000 0.1445 0.0000 0.0919 0.0000 IR Ratio -0.2016 0.0000 0.1370 0.0000 0.0546 0.0000 Treynor -0.0023 0.2460 0.0971 0.0000 0.0003 0.2460 Coeff_Var 0.1872 0.0000 0.0837 0.0000 0.0133 0.0000
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2401 0.0000 0.1530 0.0000 0.1740 0.0000 IR Ratio -0.2051 0.0000 0.1429 0.0000 0.1054 0.0000 Treynor -0.0015 0.3384 0.0984 0.0000 -0.0001 0.3384 Coeff_Var 0.0807 0.0180 0.0919 0.0000 0.0042 0.0180
Private Indian AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2225 0.0000 0.1609 0.0000 0.2255 0.0000 IR Ratio -0.1947 0.0000 0.1514 0.0000 0.1353 0.0000 Treynor -0.0011 0.3822 0.1035 0.0000 -0.0003 0.3822 Coeff_Var 0.0779 0.0107 0.0962 0.0000 0.0061 0.0107
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0250 0.0000 0.0166 0.0000 0.0341 0.0000 IR Ratio -0.0075 0.0743 0.0130 0.0000 0.0023 0.0743 Treynor -0.0001 0.8466 0.0121 0.0000 -0.0010 0.8466 Coeff_Var 0.0476 0.0000 0.0102 0.0000 0.0333 0.0000
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0272 0.0000 0.0199 0.0000 0.1106 0.0000 IR Ratio -0.0215 0.0000 0.0175 0.0000 0.0608 0.0000 Treynor -0.0003 0.2115 0.0140 0.0000 0.0007 0.2115 Coeff_Var 0.0202 0.0002 0.0129 0.0000 0.0161 0.0002
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe 0.0143 0.0000 0.0186 0.0000 0.1053 0.0000 IR Ratio 0.0147 0.0000 0.0192 0.0000 0.0888 0.0000 Treynor 0.0000 0.6730 0.0222 0.0000 -0.0013 0.6730 Coeff_Var 0.0502 0.0000 0.0188 0.0000 0.3863 0.0000
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.012 0.000 0.011 0.000 0.018 0.0000 IR Ratio -0.004 0.158 0.009 0.000 0.001 0.1581 Treynor 0.000 0.154 0.009 0.000 0.001 0.1536 Coeff_Var 0.025 0.000 0.008 0.000 0.022 0.0000
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.014 0.000 0.013 0.000 0.053 0.0000 IR Ratio -0.011 0.000 0.012 0.000 0.030 0.0000 Treynor 0.000 0.474 0.010 0.000 -0.001 0.4742 Coeff_Var 0.008 0.039 0.009 0.000 0.004 0.0391
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.016 0.000 0.014 0.000 0.100 0.0000 IR Ratio -0.016 0.000 0.013 0.000 0.083 0.0000 Treynor 0.000 0.086 0.010 0.000 0.003 0.0858 Coeff_Var 0.008 0.021 0.009 0.000 0.007 0.0214
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2359 0.0000 0.1126 0.0000 0.0624 0.0000 IR Ratio -0.1662 0.0000 0.0896 0.0000 0.0324 0.0000 Treynor 0.0025 0.2694 0.0701 0.0000 0.0002 0.2694 Coeff_Var 0.2276 0.0001 0.0610 0.0000 0.0150 0.0001
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2896 0.0000 0.1299 0.0000 0.1794 0.0000 IR Ratio -0.2506 0.0000 0.1077 0.0000 0.1197 0.0000 Treynor 0.0014 0.3964 0.0671 0.0000 -0.0004 0.3964 Coeff_Var 0.0521 0.2560 0.0643 0.0000 0.0004 0.2560
Foreign AMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2654 0.0000 0.1330 0.0000 0.2506 0.0000 IR Ratio -0.2611 0.0000 0.1185 0.0000 0.1921 0.0000 Treynor 0.0008 0.5493 0.0659 0.0000 -0.0010 0.5493 Coeff_Var 0.0719 0.0631 0.0610 0.0000 0.0038 0.0631
Conclusion
Sharpe’s Ratio Sharpe's Ratio Private Indian Indian JV Foreign Public Sector Indian Rp-Rf Fut_1Y -ve -ve -ve -ve Fut_2Y -ve -ve -ve -ve Fut_3Y +ve +ve +ve +ve Rp-Rm Fut_1Y -ve -ve -ve -ve Fut_2Y -ve -ve -ve -ve Fut_3Y -ve -ve -ve -ve BAHR Fut_1Y -ve -ve -ve -ve Fut_2Y -ve -ve -ve -ve Fut_3Y -ve -ve -ve -ve
Information Ratio Information Ratio Private Indian Indian JV Foreign Public Sector Indian Rp-Rf Fut_1Y -ve -ve -ve -ve Fut_2Y -ve -ve -ve -ve Fut_3Y +ve +ve +ve +ve Rp-Rm Fut_1Y -ve -ve F_NS -ve Fut_2Y -ve -ve -ve -ve Fut_3Y -ve -ve -ve -ve BAHR Fut_1Y -ve -ve -ve F_NS Fut_2Y -ve -ve -ve -ve Fut_3Y -ve -ve -ve -ve
Treynor’s Ratio Treynor's Ratio Private Indian Indian JV Foreign Public Sector Indian Rp-Rf Fut_1Y F_NS F_NS F_NS F_NS Fut_2Y F_NS F_NS F_NS +ve Fut_3Y F_NS F_NS F_NS F_NS Rp-Rm Fut_1Y F_NS F_NS F_NS F_NS Fut_2Y F_NS F_NS F_NS +ve Fut_3Y F_NS F_NS F_NS F_NS BAHR Fut_1Y F_NS F_NS F_NS F_NS Fut_2Y F_NS F_NS F_NS +ve Fut_3Y F_NS F_NS F_NS F_NS
Coefficient of Variation Coefficient of Variation Private Indian Indian JV Foreign Public Sector Indian Rp-Rf Fut_1Y +ve F_NS +ve -ve Fut_2Y +ve F_NS +ve -ve Fut_3Y +ve +ve +ve +ve Rp-Rm Fut_1Y +ve F_NS +ve -ve Fut_2Y +ve F_NS +ve F_NS Fut_3Y +ve F_NS +ve F_NS BAHR Fut_1Y +ve F_NS +ve F_NS Fut_2Y +ve F_NS F_NS F_NS Fut_3Y +ve F_NS +ve -ve
• Sharpe Ratio • The future performance of all kind of –vely correlated. • Information Ratio • The predicament is almost similar across all types of AMC’s • Treynor’s Ratio • Insignificant • Coefficient of Variation • Private Indian & Foreign AMC imitated by its past. • While it is trivial for Indian Joint Ventures. • Unclear for Public AMC.
Further Research Leaping Data Limitations
• The analysis can be extended for each AMC’s seperately. • The analysis can be done by grouping the schemes on the basis of capital. • The past performance measure can be calculated over 1 year, 2 years & 3 years period for that purpose weekly data is to be made available. • The analysis can be done for a particular market scenario say during sub prime crisis or other phases of boom and bust.
Aman Kesarwani Junior Undergraduate Mathematics and Computing Indian Institute of Technology Guwahati Email : a.kesarwani@iitg.ernet.in Phone : +91 7896 17 2432 Thanks !
Risk Adjusted Return • In 1996 Elton, Gruber and Blake made a significant contribution to the field by addressing the issue of survivorship bias of the testing sample of funds. • They refined the technique to calculate the risk adjusted return using the historical return data. • Concluded that the past carries the information about the future performance of the fund and they highlighted that both the 1 year and 3 year alphas convey the future information.
M3 measure • Muralidhar (2000) proposed a new measure called M3 for the construction of optimal portfolio of fund, benchmark and risk free assets. • This new measure accounts for the difference in the standard deviation of the benchmark and portfolio and the correlations of mutual fund portfolios and their benchmark for an investor’s relative risk target.
Rating Firms • Michael Stutzer analyzed the ratings given by different rating firms who partition the funds into different categories based on their style, size, asset class & sectors. • He also reported that the fund managers who can beat the benchmark for the long run surprisingly still have significant probability of underperforming which extends over a long period of time.
Benchmark • Stutzer also identified that the Sharpe Ratio which is part of the basis for rating produced by S&P and Charles Schwab is not appropriate for rating purpose because it uses a T-Bill benchmark instead of benchmark that user wants to beat. • So in our study we also took the corresponding benchmark for each fund that the fund managers want to beat and calculated the excess return over the market
In Indian Context
PCM • A sample of 50 Indian mutual fund was analyzed over 26 months by Roy and Bhattacharjee. • Calculating the Performance Change Measure (PCM) developed by Grinblatt and Titman (1993) at the lag of one month, one quarter and one year and • Found that though in short term the mutual funds were able to generate above normal return but on average the combined PCM of all mutual funds is significantly different from zero.
Return Based Style Analysis • Deb, Banerjee and Chakrabarti did a return based style analysis of Indian mutual fund • Analyzed their relative performance with respect to the style benchmark obtained by doing quadratic optimization of asset class factor model using historical monthly return • Found out that on an average fund managers have not been able to beat their style benchmark.
Open Ended Equity Mutual Fund • The result of analysis of risk & return relationship of open ended equity mutual fund schemes of both the public and private sector mutual funds in India indicate that the performance of majority of sample was not significantly related to their market movements during the study period.
Managerial Ability • The investigation of underperformance of mutual fund portfolios by Dey, Yi Wang and Yexiao Xu (2001) highlighted that the fund managers may possess superior stock selection skills • But the substantial gains could be achieved by improving the efficiency of allocation of mutual fund assets. • They also suggested the when the mutual fund turnover is excessive then fund manager may rely on the stock price momentum for profitable returns.
Market Timing & Stock Selection • A similar study based on the market timing and stock selection ability was done by Deb, Banerjee and Chakrabarti (2007) • Using conditional and unconditional model over Indian fund market • Found very little evidence of market timing skill of fund managers though their stock selection ability was decent enough to produce good returns from the market.
Bear Market • Dr. S Narayan Rao evaluated the performance of Indian mutual funds in bear market through return performance index, risk-return analysis, Treynor’s ratio, Sharpe ratio, Sharpe measure, Jensen measure and Fama measure. • He witnessed that the Medium term debt funds performed extremely well during that period while InfoTech equity funds suffered the most. • Some fund managers were able to diversify the risk and maximize the return and even few managed to give returns greater that risk free return during bear market but the debt fund were the ultimate winners.
Sub Prime Crisis • Bose (2012) tried to throw the light on the mutual funds’ performance during the recent financial crisis which tested the resilience of Indian mutual fund industry. • Huge outflow of investment from the equity fund markets a huge surge of investment in the debt and gilt fund markets driven by the low policy rates and the risk averse attitude of the investors during that period.

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Persistence of Mutual Fund Performance in India

  • 1.
    Persistence of Mutual Fund Performancein India Summer Project 2012
  • 2.
    Motivation of thestudy-1 • MFs offer diversification, expertise and pooling • MFs offer small investors access to investment with a small amount of capital • At any point of time, there exists a large no. of scheme to choose from • Question is: How to choose the scheme (s), specially by un-initiated investors • It’s a common practice in India to choose the MF scheme that has exhibited the best past performance • Over the past 1/2/3 years • A second factor is about ability of fund managers
  • 3.
    Motivation of thestudy-2 • A fund manager may be able to generate abnormal return from her portfolio during a particular period • This may be due to certain coincidences • E.g., chance selection of a promising stock or sector • However, is the fund manager capable of repeating the performance • In other words, does past performance is any indicator of future performance? • Empirical evidence from the US and other markets show that fund managers cannot beat the market • Persistently over long-run • Wherein a passive investment is more efficient
  • 4.
    Indian MF Industry •Evolution • 1963 - Unit Trust of India • 1987 – LIC and General Insurance Corporation, PSBs are allowed to launch • 1993 – Foreign and private players were allowed • AMFI reported Rs.47,004 crores AUM. • In 2012, there are 42 AMCs with AUM of Rs.692,705 crores • A slight decline after entry-load ban was imposed w.e.f. 1st August 2009 (from around Rs.8 lakh crores).
  • 5.
    Objective • Analyze performanceof the equity diversified mutual funds deploying standard measures risk-adjusted performance. • Past 36-months data were used to compute performance measure • Regressed on following 12-, 24- and 36-month performances • Starting from April 1997 (first complete 36-month past performance window) • Rolling the process forward by a month until April 2009 • Thus a maximum of sets of 180 observations for a scheme • Match with future average return and the return by the buy and hold strategy of the investor over the next 1year, 2years & 3years
  • 6.
  • 7.
    Net Asset Value •The period covers the different bull and bear phases of the Indian equity market. • The monthly closing NAV of 242 equity diversified mutual funds collected from the websites of AMFI (Association of Mutual Funds in India) and from the smctradeonline.com. • For the final analysis only 169 mutual fund schemes have been taken into account for which the data was available for at least 72 months (past 36 & future 36 months) i.e., • funds launched up to March 2008.
  • 8.
    Benchmark and T-Bill •The monthly closing price data of each index is collected from the websites of BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). • The monthly T-Bill returns (proxy for risk-free rate) data were collected from the Handbook of Statistics on Indian Economy, various issues, published by RBI.
  • 9.
    Sample AMC Ownership Number of AMC Number of Schemes PrivateIndian 12 64 Indian Joint Venture 9 57 Foreign 9 29 Public 2 19
  • 10.
  • 11.
    NAV Return • Themonthly return of each fund has been calculated from the monthly closing NAV by using the following formula: Rt+1 = NAVt+1 - NAVt NAVt where Rt+1 = Return of the mutual over month ‘t+1’. NAVt = Closing NAV of the month ‘t’. NAVt+1 = Closing NAV of the month ‘t+1’.
  • 12.
    Benchmark Return • Themonthly return of all the 15 indices has been calculated using the following formula where RB stands for the return of the benchmark : RB.t+1 = Pt+1 - Pt Pt where RB.t+1 = Return of the benchmark over the month ‘t’ Pt = Closing price of the month ‘t’ Pt+1 = Closing price of the month ‘t+1’
  • 13.
    Sharpe Ratio • Themost commonly used measure of risk adjusted performance is the Sharpe ratio which measures the fund’s excess return per unit of its risk • Given that Rp = Return of the portfolio (Mutual Fund) Rf = Risk free rate of return (T-Bill) ϬP = Standard dev. of the portfolio return P fP RR RatiosSharpe   _'
  • 14.
    Security Market Line •Security Market Line (from CAPM) represents the expected total return of every security or portfolio i as a linear function of the return of the market portfolio m : Ei = Rf + βi [Em - Rf ] where Ei ≡ E[Ri] denotes the unconditional continuous expected return of the portfolio I βi = cov(Ri , Rm) is the beta of the portfolio i. ϭ2(Rm) • This equilibrium relation corresponds to the market model rit = αi + βirm + ϵit , where ri = Ri – Rf denotes excess return on the portfolio i.
  • 15.
    Jensen’s Alpha • Totalrisk is captured by ϭ • Consists of systematic risk (explained by market index) • And capture by beta (β) • And non-systematic risk (not explained by the CAPM regression) • The intercept term for a stock should be zero theoretically • And is indeed so for most individual stocks empirically • Jensen proposed that the intercept for an actively- managed portfolio should be a performance of the manager • A measure of how much additional return a manager can generate over the benchmark • Without exceeding the systematic risk of the benchmark
  • 16.
    Treynor Ratio &Information Ratio • We don’t directly use Jensen’s alpha here (thoough we computed) for reasons explained later • The Treynor Ratio (TR) is the ratio of Jensen’s alpha over the portfolio beta • Another measure deployed here is the Information ratio, which is Jensen’s alpha per unit of non-systematic risk of the portfolio (measured by the standard deviation of the market model residuals)   ˆ ˆ TR )(ˆ ˆ   IR
  • 17.
    Coefficient of Variation •Since none of the above measures takes into account the benchmark, we deploy another measure • Excess of the return per unit of total risk of the portfolio over that of th benchmark: CR = Rp/Ϭp - Rb/Ϭb where Rp = Return of the portfolio (Mutual Fund) Rb = Return of the benchmark Ϭp = Standard deviation of return of portfolio Ϭb = Standard deviation of return of benchmark
  • 18.
    A Sample Table Averageof monthly returns - R_p - R_f Average of monthly returns - R_p - R_f BAHR - Portfolio - Benchmark Past Performance Measure Future Returns Sche me Date Sharp e IR TR Coeff_Vrar Fut1Y Fut2Y Fut3Y Fut1Y Fut2Y Fut3Y Fut1Y Fut2Y Fut3Y Birla Sun Life Asset Alloca tion Aggre ssive 31- Mar- 2007 0.358 0.339 -2.620 0.116 0.007 - 0.008 23 0.016 001 0.009 045 0.004 998 0.015 426 - 0.103 6 0.063 3 0.061 0 30- Apr- 2007 0.369 0.349 -3.286 0.112 0.006 627 - 0.005 2 0.015 861 0.005 626 - 0.012 17 - 0.001 17 - 0.128 3 0.061 7 0.073 0 31- May- 2007 0.539 951 0.477 031 - 3.899 63 0.278 991 0.000 516 0.002 539 0.015 677 0.003 476 - 0.007 24 0.000 164 - 0.077 4 0.047 7 0.073 4
  • 19.
  • 20.
    International Fund Market •Grinblatt and Titman (1992), Carhart (1994), Sharpe(1995) among others, provided evidence that confirmed the predictability of future performance by past performance – returns persists • Elton, Gruber and Blake (1996) reported that the past carries the information about the future performance of the funds and they highlighted that both the 1 year and 3 year alphas convey the future information. • Michael Stutzer, on the contrary, observed that the fund managers who can beat the benchmark for the long run surprisingly still have significant probability of underperforming • which extends over a long period of time.
  • 21.
    Indian Evidence • Asample of 50 Indian mutual fund was analyzed over 26 months by Roy and Bhattacharjee found that though in short term the mutual funds were able to generate above normal return. • Deb, Banerjee and Chakrabarti observed that on an average fund managers have not been able to beat their style benchmark. • Analysis of open ended equity mutual fund schemes indicate that the performance of majority of sample was not significantly related to their market movements during the study period.
  • 22.
    • Managerial Ability •Dey, Yi Wang and Yexiao Xu (2001) highlighted that the fund managers may possess superior stock selection skills • Deb, Banerjee and Chakrabarti (2007) found very little evidence of market timing skill of fund managers though their stock selection ability was decent enough to produce good returns from the market. • Bear Market • Dr. S Narayan Rao observed that the fund managers were able to diversify the risk and even managed to give returns greater than risk free return. • But the debt funds were ultimate winners
  • 23.
  • 24.
    Past Performance • Theperformance measures such as Sharpe, IR, Treynor, and CR for each scheme has been calculated using the data of past 36 months and this is rolled up to March 2008. • Sharpe/IR/Treynor/CR • April 1997 Apr 94 – Mar 97 • Sharpe/IR/Treynor/CR • May 1997 May 94 – Apr 97 Continued… Till March 2008
  • 25.
    Future Performance • Thefuture performance measures were computed for the next 1 year, 2years & 3 years has using following indicators: • Future returns : 1. Rp – Rf 2. Rp – Rb 3. Buy and Hold return over its benchmark
  • 26.
  • 27.
    Example - MorganStanley Growth Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0454 0.0000 0.0140 0.0000 0.0901 0.0000 IR Ratio -0.0254 0.0651 0.0091 0.0000 0.0144 0.0651 Treynor -1.0561 0.0028 0.0106 0.0000 0.0464 0.0028 Coeff_Var -0.0049 0.8992 0.0091 0.0001 -0.0059 0.8992
  • 28.
    Example - MorganStanley Growth Future Performanc e Coefficient Intercept Adjusted Significanc e Value p-value Value p-value R2 F-Statistic Sharpe -0.0395 0.0000 0.0146 0.0000 0.1794 0.0000 IR Ratio -0.0238 0.0087 0.0103 0.0000 0.0374 0.0087 Treynor -1.4222 0.0000 0.0125 0.0000 0.2350 0.0000 Coeff_Var -0.0697 0.0052 0.0108 0.0000 0.0431 0.0052
  • 29.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe 0.0145 0.0000 0.0137 0.0000 0.1159 0.0000 IR Ratio 0.0239 0.0000 0.0146 0.0000 0.1398 0.0000 Treynor 0.1167 0.3115 0.0152 0.0000 0.0002 0.3115 Coeff_Var 0.0220 0.0724 0.0152 0.0000 0.0156 0.0724 Example - Morgan Stanley Growth
  • 30.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0201 0.0052 0.0094 0.0000 0.0401 0.0052 IR Ratio -0.0080 0.3677 0.0073 0.0000 -0.0011 0.3677 Treynor -0.3453 0.1312 0.0078 0.0000 0.0077 0.1312 Coeff_Var 0.0163 0.5132 0.0071 0.0000 -0.0034 0.5132 Example - Morgan Stanley Growth
  • 31.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0193 0.0001 0.0100 0.0000 0.0910 0.0001 IR Ratio -0.0098 0.1099 0.0079 0.0000 0.0101 0.1099 Treynor -0.6296 0.0000 0.0089 0.0000 0.0975 0.0000 Coeff_Var -0.0244 0.1515 0.0081 0.0000 0.0069 0.1515 Example - Morgan Stanley Growth
  • 32.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0171 0.0000 0.0096 0.0000 0.1149 0.0000 IR Ratio -0.0134 0.0284 0.0080 0.0000 0.0264 0.0284 Treynor -0.5173 0.0001 0.0087 0.0000 0.0948 0.0001 Coeff_Var -0.0234 0.1066 0.0079 0.0000 0.0112 0.1066 Example - Morgan Stanley Growth
  • 33.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2833 0.0000 0.0437 0.0000 0.1750 0.0000 IR Ratio -0.1353 0.0301 0.0135 0.1719 0.0220 0.0301 Treynor -5.6421 0.0004 0.0213 0.0329 0.0665 0.0004 Coeff_Var -0.1917 0.2775 0.0149 0.1412 0.0011 0.2775 Example - Morgan Stanley Growth
  • 34.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2265 0.0000 0.0312 0.0000 0.3003 0.0000 IR Ratio -0.0870 0.0323 0.0063 0.3321 0.0229 0.0323 Treynor -2.8130 0.0064 0.0100 0.1318 0.0409 0.0064 Coeff_Var -0.0460 0.6836 0.0058 0.3841 -0.0054 0.6836 Example - Morgan Stanley Growth
  • 35.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.1459 0.0000 0.0134 0.0001 0.4480 0.0000 IR Ratio -0.0653 0.0157 -0.0020 0.6015 0.0334 0.0157 Treynor -0.7157 0.2338 -0.0028 0.4782 0.0030 0.2338 Coeff_Var 0.0699 0.2764 -0.0055 0.1550 0.0013 0.2764 Example - Morgan Stanley Growth
  • 36.
  • 37.
    Indian Joint VentureAMC Future Performanc e Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0341 0.0000 0.0152 0.0000 0.0585 0.0000 IR Ratio -0.0306 0.0000 0.0139 0.0000 0.0372 0.0000 Treynor -0.0002 0.3107 0.0087 0.0000 0.0000 0.3107 Coeff_Var 0.0131 -0.0090 0.0083 0.0000 0.0003 0.2455
  • 38.
    Future Performanc e Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0228 0.0000 0.0160 0.0000 0.0930 0.0000 IR Ratio -0.0211 0.0000 0.0152 0.0000 0.0606 0.0000 Treynor 0.0000 0.6312 0.0109 0.0000 0.0002 0.6312 Coeff_Var 0.0017 0.8016 0.0108 0.0000 -0.0010 0.8016 Indian Joint Venture AMC
  • 39.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe 0.0183 0.0000 0.0142 0.0000 0.2214 0.0000 IR Ratio 0.0223 0.0000 0.0137 0.0000 0.2288 0.0000 Treynor -0.0001 0.1229 0.0193 0.0000 0.0020 0.1229 Coeff_Var 0.0623 0.0000 0.0166 0.0000 0.3510 0.0000 Indian Joint Venture AMC
  • 40.
    Future Performance Coefficient InterceptAdjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0172 0.0000 0.0105 0.0000 0.0315 0.0000 IR Ratio -0.0160 0.0000 0.0100 0.0000 0.0215 0.0000 Treynor -0.0002 0.0254 0.0072 0.0000 0.0033 0.0254 Coeff_Var 0.0145 0.0603 0.0068 0.0000 0.0021 0.0603 Indian Joint Venture AMC
  • 41.
    Indian Joint VentureAMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0118 0.0000 0.0109 0.0000 0.0346 0.0000 IR Ratio -0.0113 0.0000 0.0105 0.0000 0.0242 0.0000 Treynor 0.0000 0.4983 0.0082 0.0000 -0.0006 0.4983 Coeff_Var -0.0029 0.6125 0.0083 0.0000 -0.0008 0.6125
  • 42.
    Indian Joint VentureAMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0128 0.0000 0.0119 0.0000 0.0605 0.0000 IR Ratio -0.0132 0.0000 0.0000 0.0116 0.0449 0.0000 Treynor -0.0001 0.1026 0.0083 0.0000 0.0024 0.1026 Coeff_Var -0.0003 0.9579 0.0083 0.0000 -0.0014 0.9579
  • 43.
    Indian Joint VentureAMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0715 0.0000 0.0493 0.0000 0.0219 0.0000 IR Ratio -0.0684 0.0000 0.0473 0.0000 0.0157 0.0000 Treynor -0.0007 0.1459 0.0357 0.0000 0.0009 0.1459 Coeff_Var 0.0514 0.1804 0.0341 0.0000 0.0007 0.1804
  • 44.
    Indian Joint VentureAMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0898 0.0000 0.0588 0.0000 0.0775 0.0000 IR Ratio -0.0816 0.0000 0.0550 0.0000 0.0488 0.0000 Treynor -0.0001 0.8056 0.0383 0.0000 -0.0010 0.8056 Coeff_Var -0.0392 0.1776 0.0397 0.0000 0.0009 0.1776
  • 45.
    Indian Joint VentureAMC Future Performance Coefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0979 0.0000 0.0647 0.0000 0.1358 0.0000 IR Ratio -0.1005 0.0000 0.0628 0.0000 0.0996 0.0000 Treynor 0.0002 0.5327 0.0377 0.0000 -0.0009 0.5327 Coeff_Var -0.0398 0.1385 0.0394 0.0000 0.0017 0.1385
  • 46.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0250 0.0000 0.0178 0.0000 0.0323 0.0000 IR Ratio -0.0146 0.0004 0.0157 0.0000 0.0087 0.0004 Treynor 0.0001 0.7292 0.0128 0.0000 -0.0007 0.7292 Coeff_Var 0.0453 0.0000 0.0096 0.0000 0.0260 0.0000
  • 47.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0198 0.0000 0.0197 0.0000 0.0570 0.0000 IR Ratio -0.0121 0.0000 0.0179 0.0000 0.0169 0.0000 Treynor 0.0003 0.1281 0.0152 0.0000 0.0012 0.1281 Coeff_Var 0.0304 0.0000 0.0128 0.0000 0.0341 0.0000
  • 48.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe 0.0200 0.0000 0.0173 0.0000 0.1950 0.0000 IR Ratio 0.0291 0.0000 0.0153 0.0000 0.3249 0.0000 Treynor 0.0002 0.1483 0.0225 0.0000 0.0012 0.1483 Coeff_Var 0.0626 0.0000 0.0168 0.0000 0.4959 0.0000
  • 49.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0127 0.0000 0.0117 0.0000 0.0194 0.0000 IR Ratio -0.0065 0.0155 0.0105 0.0000 0.0036 0.0155 Treynor -0.0001 0.5428 0.0092 0.0000 -0.0005 0.5428 Coeff_Var 0.0249 0.0000 0.0075 0.0000 0.0184 0.0000
  • 50.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0106 0.0000 0.0128 0.0000 0.0321 0.0000 IR Ratio -0.0063 0.0012 0.0117 0.0000 0.0087 0.0012 Treynor 0.0001 0.6567 0.0104 0.0000 -0.0007 0.6567 Coeff_Var 0.0135 0.0001 0.0093 0.0000 0.0129 0.0001
  • 51.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0122 0.0000 0.0139 0.0000 0.0645 0.0000 IR Ratio -0.0080 0.0000 0.0127 0.0000 0.0207 0.0000 Treynor -0.0002 0.1618 0.0108 0.0000 0.0011 0.1618 Coeff_Var 0.0137 0.0000 0.0095 0.0000 0.0202 0.0000
  • 52.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2392 0.0000 0.1445 0.0000 0.0919 0.0000 IR Ratio -0.2016 0.0000 0.1370 0.0000 0.0546 0.0000 Treynor -0.0023 0.2460 0.0971 0.0000 0.0003 0.2460 Coeff_Var 0.1872 0.0000 0.0837 0.0000 0.0133 0.0000
  • 53.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2401 0.0000 0.1530 0.0000 0.1740 0.0000 IR Ratio -0.2051 0.0000 0.1429 0.0000 0.1054 0.0000 Treynor -0.0015 0.3384 0.0984 0.0000 -0.0001 0.3384 Coeff_Var 0.0807 0.0180 0.0919 0.0000 0.0042 0.0180
  • 54.
    Private Indian AMC Future PerformanceCoefficient Intercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2225 0.0000 0.1609 0.0000 0.2255 0.0000 IR Ratio -0.1947 0.0000 0.1514 0.0000 0.1353 0.0000 Treynor -0.0011 0.3822 0.1035 0.0000 -0.0003 0.3822 Coeff_Var 0.0779 0.0107 0.0962 0.0000 0.0061 0.0107
  • 55.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0250 0.0000 0.0166 0.0000 0.0341 0.0000 IR Ratio -0.0075 0.0743 0.0130 0.0000 0.0023 0.0743 Treynor -0.0001 0.8466 0.0121 0.0000 -0.0010 0.8466 Coeff_Var 0.0476 0.0000 0.0102 0.0000 0.0333 0.0000
  • 56.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.0272 0.0000 0.0199 0.0000 0.1106 0.0000 IR Ratio -0.0215 0.0000 0.0175 0.0000 0.0608 0.0000 Treynor -0.0003 0.2115 0.0140 0.0000 0.0007 0.2115 Coeff_Var 0.0202 0.0002 0.0129 0.0000 0.0161 0.0002
  • 57.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe 0.0143 0.0000 0.0186 0.0000 0.1053 0.0000 IR Ratio 0.0147 0.0000 0.0192 0.0000 0.0888 0.0000 Treynor 0.0000 0.6730 0.0222 0.0000 -0.0013 0.6730 Coeff_Var 0.0502 0.0000 0.0188 0.0000 0.3863 0.0000
  • 58.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.012 0.000 0.011 0.000 0.018 0.0000 IR Ratio -0.004 0.158 0.009 0.000 0.001 0.1581 Treynor 0.000 0.154 0.009 0.000 0.001 0.1536 Coeff_Var 0.025 0.000 0.008 0.000 0.022 0.0000
  • 59.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.014 0.000 0.013 0.000 0.053 0.0000 IR Ratio -0.011 0.000 0.012 0.000 0.030 0.0000 Treynor 0.000 0.474 0.010 0.000 -0.001 0.4742 Coeff_Var 0.008 0.039 0.009 0.000 0.004 0.0391
  • 60.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.016 0.000 0.014 0.000 0.100 0.0000 IR Ratio -0.016 0.000 0.013 0.000 0.083 0.0000 Treynor 0.000 0.086 0.010 0.000 0.003 0.0858 Coeff_Var 0.008 0.021 0.009 0.000 0.007 0.0214
  • 61.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2359 0.0000 0.1126 0.0000 0.0624 0.0000 IR Ratio -0.1662 0.0000 0.0896 0.0000 0.0324 0.0000 Treynor 0.0025 0.2694 0.0701 0.0000 0.0002 0.2694 Coeff_Var 0.2276 0.0001 0.0610 0.0000 0.0150 0.0001
  • 62.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2896 0.0000 0.1299 0.0000 0.1794 0.0000 IR Ratio -0.2506 0.0000 0.1077 0.0000 0.1197 0.0000 Treynor 0.0014 0.3964 0.0671 0.0000 -0.0004 0.3964 Coeff_Var 0.0521 0.2560 0.0643 0.0000 0.0004 0.2560
  • 63.
    Foreign AMC Future Performance CoefficientIntercept Adjusted Significance Value p-value Value p-value R2 F-Statistic Sharpe -0.2654 0.0000 0.1330 0.0000 0.2506 0.0000 IR Ratio -0.2611 0.0000 0.1185 0.0000 0.1921 0.0000 Treynor 0.0008 0.5493 0.0659 0.0000 -0.0010 0.5493 Coeff_Var 0.0719 0.0631 0.0610 0.0000 0.0038 0.0631
  • 64.
  • 65.
    Sharpe’s Ratio Sharpe's Ratio Private IndianIndian JV Foreign Public Sector Indian Rp-Rf Fut_1Y -ve -ve -ve -ve Fut_2Y -ve -ve -ve -ve Fut_3Y +ve +ve +ve +ve Rp-Rm Fut_1Y -ve -ve -ve -ve Fut_2Y -ve -ve -ve -ve Fut_3Y -ve -ve -ve -ve BAHR Fut_1Y -ve -ve -ve -ve Fut_2Y -ve -ve -ve -ve Fut_3Y -ve -ve -ve -ve
  • 66.
    Information Ratio Information Ratio Private IndianIndian JV Foreign Public Sector Indian Rp-Rf Fut_1Y -ve -ve -ve -ve Fut_2Y -ve -ve -ve -ve Fut_3Y +ve +ve +ve +ve Rp-Rm Fut_1Y -ve -ve F_NS -ve Fut_2Y -ve -ve -ve -ve Fut_3Y -ve -ve -ve -ve BAHR Fut_1Y -ve -ve -ve F_NS Fut_2Y -ve -ve -ve -ve Fut_3Y -ve -ve -ve -ve
  • 67.
    Treynor’s Ratio Treynor's Ratio Private IndianIndian JV Foreign Public Sector Indian Rp-Rf Fut_1Y F_NS F_NS F_NS F_NS Fut_2Y F_NS F_NS F_NS +ve Fut_3Y F_NS F_NS F_NS F_NS Rp-Rm Fut_1Y F_NS F_NS F_NS F_NS Fut_2Y F_NS F_NS F_NS +ve Fut_3Y F_NS F_NS F_NS F_NS BAHR Fut_1Y F_NS F_NS F_NS F_NS Fut_2Y F_NS F_NS F_NS +ve Fut_3Y F_NS F_NS F_NS F_NS
  • 68.
    Coefficient of Variation Coefficientof Variation Private Indian Indian JV Foreign Public Sector Indian Rp-Rf Fut_1Y +ve F_NS +ve -ve Fut_2Y +ve F_NS +ve -ve Fut_3Y +ve +ve +ve +ve Rp-Rm Fut_1Y +ve F_NS +ve -ve Fut_2Y +ve F_NS +ve F_NS Fut_3Y +ve F_NS +ve F_NS BAHR Fut_1Y +ve F_NS +ve F_NS Fut_2Y +ve F_NS F_NS F_NS Fut_3Y +ve F_NS +ve -ve
  • 69.
    • Sharpe Ratio •The future performance of all kind of –vely correlated. • Information Ratio • The predicament is almost similar across all types of AMC’s • Treynor’s Ratio • Insignificant • Coefficient of Variation • Private Indian & Foreign AMC imitated by its past. • While it is trivial for Indian Joint Ventures. • Unclear for Public AMC.
  • 70.
  • 71.
    • The analysiscan be extended for each AMC’s seperately. • The analysis can be done by grouping the schemes on the basis of capital. • The past performance measure can be calculated over 1 year, 2 years & 3 years period for that purpose weekly data is to be made available. • The analysis can be done for a particular market scenario say during sub prime crisis or other phases of boom and bust.
  • 72.
    Aman Kesarwani Junior Undergraduate Mathematicsand Computing Indian Institute of Technology Guwahati Email : a.kesarwani@iitg.ernet.in Phone : +91 7896 17 2432 Thanks !
  • 73.
    Risk Adjusted Return •In 1996 Elton, Gruber and Blake made a significant contribution to the field by addressing the issue of survivorship bias of the testing sample of funds. • They refined the technique to calculate the risk adjusted return using the historical return data. • Concluded that the past carries the information about the future performance of the fund and they highlighted that both the 1 year and 3 year alphas convey the future information.
  • 74.
    M3 measure • Muralidhar(2000) proposed a new measure called M3 for the construction of optimal portfolio of fund, benchmark and risk free assets. • This new measure accounts for the difference in the standard deviation of the benchmark and portfolio and the correlations of mutual fund portfolios and their benchmark for an investor’s relative risk target.
  • 75.
    Rating Firms • MichaelStutzer analyzed the ratings given by different rating firms who partition the funds into different categories based on their style, size, asset class & sectors. • He also reported that the fund managers who can beat the benchmark for the long run surprisingly still have significant probability of underperforming which extends over a long period of time.
  • 76.
    Benchmark • Stutzer alsoidentified that the Sharpe Ratio which is part of the basis for rating produced by S&P and Charles Schwab is not appropriate for rating purpose because it uses a T-Bill benchmark instead of benchmark that user wants to beat. • So in our study we also took the corresponding benchmark for each fund that the fund managers want to beat and calculated the excess return over the market
  • 77.
  • 78.
    PCM • A sampleof 50 Indian mutual fund was analyzed over 26 months by Roy and Bhattacharjee. • Calculating the Performance Change Measure (PCM) developed by Grinblatt and Titman (1993) at the lag of one month, one quarter and one year and • Found that though in short term the mutual funds were able to generate above normal return but on average the combined PCM of all mutual funds is significantly different from zero.
  • 79.
    Return Based Style Analysis •Deb, Banerjee and Chakrabarti did a return based style analysis of Indian mutual fund • Analyzed their relative performance with respect to the style benchmark obtained by doing quadratic optimization of asset class factor model using historical monthly return • Found out that on an average fund managers have not been able to beat their style benchmark.
  • 80.
    Open Ended Equity MutualFund • The result of analysis of risk & return relationship of open ended equity mutual fund schemes of both the public and private sector mutual funds in India indicate that the performance of majority of sample was not significantly related to their market movements during the study period.
  • 81.
    Managerial Ability • Theinvestigation of underperformance of mutual fund portfolios by Dey, Yi Wang and Yexiao Xu (2001) highlighted that the fund managers may possess superior stock selection skills • But the substantial gains could be achieved by improving the efficiency of allocation of mutual fund assets. • They also suggested the when the mutual fund turnover is excessive then fund manager may rely on the stock price momentum for profitable returns.
  • 82.
    Market Timing &Stock Selection • A similar study based on the market timing and stock selection ability was done by Deb, Banerjee and Chakrabarti (2007) • Using conditional and unconditional model over Indian fund market • Found very little evidence of market timing skill of fund managers though their stock selection ability was decent enough to produce good returns from the market.
  • 83.
    Bear Market • Dr.S Narayan Rao evaluated the performance of Indian mutual funds in bear market through return performance index, risk-return analysis, Treynor’s ratio, Sharpe ratio, Sharpe measure, Jensen measure and Fama measure. • He witnessed that the Medium term debt funds performed extremely well during that period while InfoTech equity funds suffered the most. • Some fund managers were able to diversify the risk and maximize the return and even few managed to give returns greater that risk free return during bear market but the debt fund were the ultimate winners.
  • 84.
    Sub Prime Crisis •Bose (2012) tried to throw the light on the mutual funds’ performance during the recent financial crisis which tested the resilience of Indian mutual fund industry. • Huge outflow of investment from the equity fund markets a huge surge of investment in the debt and gilt fund markets driven by the low policy rates and the risk averse attitude of the investors during that period.

Editor's Notes