Mutual Fund Performance and the Market Index: Evidence from Pakistan

Mohammad Nauman Khan 1,2Raza Aziz 2Fatima Nauman Khan 3

1. University of Southampton, Southampton SO167PX, United Kingdom
2. Institute of Management Sciences, Peshawar 25000, Pakistan
3. Allama Iqbal Open University, Islamabad 44000, Pakistan

Abstract

Mutual Funds are the most popular vehicle of investing in the stock market and their performance evaluation is a topic important to both investors and the academics. Surprisingly, mutual funds have not played a very important role in Pakistani stock market and perhaps consequently nothing much has been written about their performance in Pakistan. This paper looks at the performance of Pakistani mutual funds over the last twelve years (2002-2013) using Sharpe, Jensen and Treynor measure of portfolio analysis. The performance is compared to that of the market portfolio i.e. Karachi Stock Exchange’s KSE-100 index. Descriptive analysis, correlation and regression is used to analyse the performance of 9 mutual funds. Most of the funds had to be excluded because they went bankrupt or were closed down during the period studied due to different reasons, one of them being the financial crunch in 2008.

Results of the study are very consistent. Using the Sharpe measure the performance of virtually all the funds was found to be inferior to that of the market portfolio. According to Treynor index two funds namely Asian Stock Fund and Prudential Stock Fund outperformed the market index while according to Jensen’s model only Asian Stock Fund outperformed the market index. These results support the semi strong form of market efficiency of market hypothesis. It is even stronger than it has been demonstrated in the developed markets.

 

Presentation: Oral at Current Economic and Social Topics 2015, by Mohammad Nauman Khan
See On-line Journal of Current Economic and Social Topics 2015

Submitted: 2015-10-15 20:02
Revised:   2015-10-15 20:02