Return Based Style Analysis of Indian Equity Mutual Funds

Abstract

In this paper we did a return based style analysis of equity mutual funds in India using quadratic optimization of an asset class factor model proposed by William Sharpe. We analyzed the relative performance of the funds with respect to their style benchmarks. Our results show that the funds have not been able to beat their style benchmarks. We also did an attribution analysis of the excess return of the funds over style benchmark into a selection and a timing component. Our results show that Indian equity mutual fund managers have good selection skills but poor timing skills. Their timing skills are poor enough to bring down their overall performance with respect to their style benchmarks, despite positive selection returns.