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Mutual fund performance in changing economic conditions: Evidence from an emerging economy

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  • Pankaj K Agarwal
  • H. K. Pradhan

Abstract

Traditional measures of assessment of mutual fund performance (alpha) are based mostly on Capital Assets Pricing Model which presupposes fixed sensitivity of risk exposure of a fund to its market proxy (beta). However, changing economic conditions will alter this relationship. In conditional performance evaluation, the betas as well as alphas are allowed to vary in response to changing economic conditions over time. We hypothesize that true skill in fund management goes beyond altering the portfolio in response to changes in macroeconomic indicators. Therefore, this study examines the existence of superior performance of open-ended equity mutual funds in India in a conditional setting. We use a survivorship-bias-free database including all schemes since inception (2006–2015). We find evidence of selectivity and timing skills by the Indian fund managers even after controlling for changing macroeconomic variables. The evidence is weaker on aggregate basis than at fund level.

Suggested Citation

  • Pankaj K Agarwal & H. K. Pradhan, 2019. "Mutual fund performance in changing economic conditions: Evidence from an emerging economy," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1687072-168, January.
    • Handle: RePEc:taf:oaefxx:v:7:y:2019:i:1:p:1687072
    DOI: 10.1080/23322039.2019.1687072
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    Cited by:

    1. Kalima, Bwalya & Gopane, Thabo, 2022. "Portfolio performance under dynamic systematic risk and conditional betas: The South African unit trust market," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 66, pages 85-98.
    2. Elroi Hadad & Davinder Malhotra & Srinivas Nippani, 2024. "Trading commodity ETFs: Price behavior, investment insights, and performance analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(7), pages 1257-1276, July.

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