Evaluating alternative performance benchmarks for Indian mutual fund industry

Sanjay Sehgal and Sonal Babbar

Journal of Advances in Management Research, 2017, vol. 14, issue 2, 222-250

Abstract: Purpose - The purpose of this paper is to perform a relative assessment of performance benchmarks based on alternative asset pricing models to evaluate performance of mutual funds and suggest the best approach in Indian context. Design/methodology/approach - Sample of 237 open-ended Indian equity (growth) schemes from April 2003 to March 2013 is used. Both unconditional and conditional versions of eight performance models are employed, namely, Jensen (1968) measure, three-moment asset pricing model, four-moment asset pricing model, Fama and French (1993) three-factor model, Carhart (1997) four-factor model, Eltonet al.(1999) five-index model, Fama and French (2015) five-factor model and firm quality five-factor model. Findings - Conditional version of Carhart (1997) model is found to be the most appropriate performance benchmark in the Indian context. Success of conditional models over unconditional models highlights that fund managers dynamically manage their portfolios. Practical implications - A significantαgenerated over and above the return estimated using Carhart’s (1997) model reflects true stock-picking skills of fund managers and it is, therefore, worth paying an active management fee. Stock exchanges and credit rating agencies in India should construct indices incorporating size, value and momentum factors to be used for purpose of benchmarking. Originality/value - The study adds new evidence as to applicability of established asset pricing models as performance benchmarks in emerging market India. It examines role of higher order moments in explaining mutual fund returns which is an under researched area.

Keywords: Mutual funds; Asset pricing; Conditional measures; Higher order moments; Performance benchmarks; G12; G23; C12; C32; C52 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jamrpp:jamr-04-2016-0028

DOI: 10.1108/JAMR-04-2016-0028

Access Statistics for this article

Journal of Advances in Management Research is currently edited by Prof Ravi Shankar and Prof Surendra Yadav

More articles in Journal of Advances in Management Research from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().