Mutual Funds are Subject to Market Risks: Empirical Evidence From India

Abstract

Academicians and investigators all over the world examine the effects of various macroeconomic variables on security markets, but studies on the repercussions for portfolios are not prominent. This study attempts to address this aspect by performing an exploratory, longitudinal study on 41 mutual funds (belonging to two categories, energy funds and gold funds). Using three-year daily net asset values (NAVs) of these funds and daily values of nine selected macroeconomic variables, the study analyzes the data using time-series nonstationary methods to explore the impact of macroeconomic variables on the chosen funds. The macroeconomic variables were found to affect both fund types, but in different ways. Investment in energy funds changed whenever there was a change in money supply. A positive effect was seen on gold fund NAVs with a change in interest rates. The major impact came from own-fund information when excited by shocks of one standard deviation. The study establishes causality between various mutual funds and the chosen macroeconomic variables. This study accentuates the interrelationship between the macro-economy and the stock market and stresses the need for investors as well as fund managers to understand the global scenario in order to make profitable deals. This insight could also help in developing better fund schemes. TOPICS: Commodities, mutual fund performance, emerging markets