Performance Evaluation of Pakistan's Mutual Fund Industry: Validating Fama French 3 And 5 Factor Model

Abstract

In order to evaluate the performance of the mutual fund industry in various financial markets, a wide variety of researches have been conducted, which lead to different results. As the Pakistani mutual fund industry is much younger as compared to the US and UK fund industries and thus limited work has been done to evaluate the Pakistani mutual fund industry.Over the past few years, the industry has shown a phenomenal growth and it makes it worthwhile to study the performance of mutual funds. The aim of this research study is to validate the Fama French 3-Factor Model and Fama French 5-Factor Model. Also, this research attempts to test that which one of the included model performs better than the other so as to check their preferred suitability in measuring and evaluating the mutual fund performance in Pakistan. The monthly data of 323 open ended mutual funds for the period of 2008 to 2018 is analyzed. The GRS model validation test was applied, the results of the test found that the Fama French 5-Factor Model performed much better than the Fama French 3-Factor Model.This research contributes to the body of knowledge by providing academicians and practitioners more knowledge regarding multifactor asset pricing model so as to make better investment decisions.