International Journal of Financial Management

Karunanithy Banumathy ¹, Malabika Deo ², Ramachandran Azhagaiah ¹

Affiliations
1 Department of Commerce, Kanchi Mamunivar Centre for PG Studies, Puducherry, IN
2 Department of Commerce, Pondicherry University, Puducherry, IN

Abstract

This paper examines how consistently underperforming mutual funds are able to persist nevertheless and also analyses whether the investors choose funds on the basis of past risk-adjusted returns or investors react to recent returns without considering the predictive validity of returns. The study is based on growth funds of all open ended equity schemes for a period of 10 years, i.e., from 1st April 2001 to 31st March 2011 and evaluates the performance of mutual funds based on 25 selected schemes. Capital Asset Pricing Model (CAPM) and models suggested by Sharpe, Treynor, and Jensen Measure were used. The study reveals that the investors are concentrating on the recent return and focusing on the future performance by ignoring the risk involved in it. The paper concludes that though the risk is high, the underperforming funds are able to survive nevertheless into the market.

Keywords

Behavioural Finance, Capital Asset Pricing Model, Growth Schemes, Investment Decision, Jensen's Alpha, Performance Evaluation, Sharpe Ratio, Treynor Ratio.

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Martin Bernard ¹, Malabika Deo ¹

Affiliations
1 Department of Commerce, Pondicherry University, Puducherry, IN

Abstract

Momentum has remained an unanswered anomaly in finance literature. Researchers have pointed out two arguments, whether the source of prior return anomalies are rational or behavioral. In this paper, we examined return chasing tendency investors and the profitability of probable price momentum strategy in Indian equity market using the monthly return data of equities represented in BSE-500 index encompassing the time period from July 2004 to Jun 2014. Study is an attempt to analyze momentum effect before, during and after the financial crisis of 2007-2009 to check whether investors continue to follow the same strategy during crisis or their behavior undergoes any change. Also study examined the adequacy of rational CAPM models to explain momentum profits. The result evidenced a strong presence of economically and statistically significant momentum profit in Indian stock market equity returns. Therefore return chasing tendency of Indian investors is found to be persistent in the intermediate horizon in Indian context. Closer observation of the results reveals that, Indian investors are winners chasers rather than investor in past losers. Study also confirmed that investor's sentiments are volatile according to general market environment and inadequacy of rationalist equilibrium model to explain momentum profits.

Keywords

Behavioral Finance, Price Momentum Strategies, Abnormal Return, Indian Equity Market, CAPM.

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