Do Indian Professional Investors Beat the Market?

Abstract

Is professional investing a loser’s game? Many studies were conducted to answer this question. In developed markets most of the studies conclude that professional investors are unable to beat the market or expectations of the investors. These results led to the creation of large passive investment market in developed markets. But, in case of emerging markets there is scope for generating better than market/expected returns through professional investment management. Existence of information asymmetry between management and market enables professional investors to beat the market/expected returns. The objective of this study is study if Indian professional investors (fund managers) earn return in excess of benchmark returns over different time periods. The study is based on the sample of 40 growth schemes of 15 fund houses that have been in existence for at least 15 years. Results of the study shows that the sample funds earned average excess returns over benchmark returns of 0.02% over 5 year period and 0.01% over 15 years period. These funds also have lower risk-return ratio compared to the same for benchmark portfolio. It seems Indian professional investors are able to beat the market.