Investment Choices in Bearish and Bullish Capital Markets: A Case of Mutual Fund Association of Pakistan

Abstract

The objective of this study is to evaluate co-movement among funds’ returns and risk, benchmark, and lagged returns in bearish and bullish markets of mutual fund Industry. 114 funds out of 250 funds were collected from 19 AMCs between March-2013 to March-2018 on quarterly basis. Quantile regression model has employed on 10 quantile processes with classification of 4 models i.e., Overall Model, Islamic versus Conventional Funds, Categorywise Classification, and Ownership-wise Classification. The findings revealed that risk is negatively associated with fund returns in bearish market, the sign got changed in median or normal market, and risk is positively associated with the bullish markets in all models. Furthermore, the benchmarks exhibited a positive relationship with fund returns throughout the study. The study also explored the risk appetite classification in all regimes. The overall model suggested to invest in normal market neither bearish nor bullish. The conventional funds found less risky than the Islamic one, and money market funds are riskier than income funds, similarly pure equity funds are riskier than asset allocation and balanced funds. Finally, funds managed by the brokerage houses found aggressive to the market and are riskier than the funds managed by the commercial banks.