Risk, Return and Market Timing: A Conditional Performance Benchmarking Model

--Joyjit Dhar and Ram Pratap Sinha

The traditional approach of portfolio benchmarking was developed by Markowitz (1952) with his Mean-Variance (M-V) model. The emergence of Capital Asset Pricing Model (CAPM), however, led to the introduction of indices provided by Sharpe (1966), Treynor (1965) and Jensen (1968). Nevertheless, these models suffer from two major shortcomings—one is the benchmark selection process and the other is the use of linear factor models such as CAPM. Moreover, the asset-pricing models assume constant beta coefficient over the sample period under study. But if fund managers adopt active fund management strategy known as market timing (Treynor and Mazuy, 1966; and Henriksson and Merton, 1981), an estimation bias will occur in case of benchmark models which in turn will make computed measures unreliable. The present study extends the portfolio evaluation framework provided by Sharpe (1966) and Treynor (1965) by including the parameter of market timing with the help of a non-parametric framework. However, the present study departs from the conventional point estimation based Data Envelopment Analysis (DEA) framework. Robust bootstrap based DEA has been used in the present exercise to evaluate the conditional performance of 51 mutual fund schemes operating in India. In the second stage, the linkage between fund efficiency and market timing is explored through truncated regression analysis. The regression result does not show a statistically significant association between bootstrap efficiency scores and market timing indicator.

© 2016 IUP. All Rights Reserved.

A Comprehensive Evaluation of Select Large Cap and ELSS Funds Using Formula Based Risk Adjusted Performance Measures

--Param Raj and Rakesh Shahani

The present study makes an attempt to compare large cap schemes and the Equity Linked Savings Scheme (ELSS) of four mutual funds to determine whether investment in large cap schemes is justified from a long-term perspective or ELSS could provide an ideal substitute for these schemes especially for a tax-savvy investor. The study compared the two categories of schemes on different formula based risk adjustment performance yardsticks which included popular traditional risk adjusted measures like Sharp, Treynor and Jensen ratios and alternative risk measures (downward risk/volatility measures). The funds selected were also compared against two benchmarks; one was the popular S&P CNX Nifty and second was the S&P 500, the broader index. The data has been collected as daily returns for these funds for the five-year period April 1, 2009 to March 31, 2014. The results of the study showed that performance of large cap funds has fallen short of the performance of ELSS funds when comparison was made on the above-mentioned yardsticks. The conclusion drawn is that the ELSS funds are not merely tools of saving tax under Section 80C of the Income Tax Act but also provide fairly decent returns over the long term period, which according to our results are even higher than the otherwise popular large cap funds.

© 2016 IUP. All Rights Reserved.

Perceptions of Bankers and Researchers Towards Effectiveness of Basel Norms in Banking Risk Management: A Survey

--Swapna Samanta and Tanupa Chakraborty

Basel norms are designed to ensure safety and stability of the banking system at an international level. The norms were introduced in 1988 in the name of Basel I, which through subsequent and continuous modification has now taken the shape of Basel III. Indian banks being internationally active, are well preparing themselves to comply with the new Basel III norms. The paper tries to collect and investigate the views of bankers, researchers and experts in the field of banking risk management about the effectiveness of Basel norms for risk management in Indian banking industry.

© 2016 IUP. All Rights Reserved.