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Abstract:
This paper calculates the Performance Change measure (PCM) developed by Grinblatt & Titman (Journal of Business, 1993, vol. 66, no. 1)for a sample of 50 Indian mutual funds over a period of 26 months. PCM as a measure has some advantages compared to the traditional measures, the most important one being - it is free from using a benchmark portfolio and consequently the resulting biases arising out of usage of such a portfolio. So by using PCM as a measure, this paper, without using any benchmark, attempts to asses whether the selected mutual funds are able to provide above-normal return on average - using no more information than what is available to the common investor. PCM has been calculated for one month, one quarter, and one year lag. And using PCM as a measure the study finds that though in the short term, the mutual funds were unable to generate above-normal return but on the average the combined PCM of all the mutual funds is significantly different from zero, which are in agreement with the original findings of Grinblatt & Titman, in this Indian context.

Performance Measurement, Mutual Funds, Benchmark

Abstract:
Lévy processes are becoming increasingly popular in mathematical finance because they can explain the observed reality of financial markets in a more accurate way than the models based on only Brownian motion. In the real world, it is a fact that asset price processes do have jumps, and risk managers need to take them into account. Also, one can observe from the empirical distribution of asset returns, the existence of fat tails and skewness - behavior that deviates from normality. Hence, models that fit return distributions more accurately are essential for the estimation of gain or loss from trading. In the risk-neutral world, we observe that implied volatilities are neither constant across strike prices nor across time to expiration, as stipulated by the Black and Scholes model. Therefore, traders need models that can capture the behavior of the implied volatility smiles more accurately in order to handle the risk of trades. Lévy processes provide us with an appropriate framework to describe all these phenomena much better.