PERSISTENCE IN PERFORMANCE OF ACTIVELY MANAGED EQUITY MUTUAL FUNDS: NEW INDIAN EVIDENCE

This paper examines persistence in performance of actively managed Indian equity mutual funds over short and long time horizons after controlling for systematic factors like market risk, size, value, momentum, and expenses. It also explores whether such performance persistence depends on investor holding period, fund size, age, style or expense ratio.

Using monthly returns of a sample of 263 actively managed Indian equity mutual funds which continuously existed between January 2000 and December 2014, we generate their 4-factor-alpha (Carhart, 1997) and adjust it for fund expenses scaled by recent most inflation-adjusted assets under management (AUM) as net risk- adjusted performance measure of funds. We then test  persistence in fund performance using non-parametric contingency table and quartile-transition-matrix approaches. We find overall evidence of persistence, especially over shorter time horizons. This pattern is more or less uniform and independent of the calendar years in our study period. We find that larger, older and high-expense-ratio funds are marginally more persistent, although no discernible pattern is identifiable within style partitions. However, a considerable part of the persistence observed is due to the relatively poor performers in the group. The only exceptions are the older funds, which exhibit short- as well as long-term persistence, and this comes mostly from the winners , not the losers . We affirm the robustness of our results by using a number of robustness tests. The findings indicate that the past performance of managed portfolios, at least in an emerging market like India, can have some useful information for investors.