Market Timing Ability of Indian Mutual Funds potx

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VSRD-IJBMR, Vol. 1 (7), 2011, 416-427

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Assistant Professor, MBA Department, Apeejay Institute of Technology, School of Management, G.Noida, Uttar Pradesh,
INDIA. *Correspondence :
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Market Timing Ability of Indian Mutual Funds
1
Surinder Kr. Miglani*
ABSTRACT
This paper analyzes Indian mutual fund managers’ market timing ability for the period of 1999-2004 using
Jensen & Mazuy Module and Henriksson & Merton Module. To achieve the goal a sample of ninety eight
mutual fund schemes having different investment objectives, both from public as well as private sector, have
been selected. The study finds that Indian mutual fund managers are unable to test the market timing of the
mutual fund schemes and relying only on stock selection skill for getting maximum return. It implies that they
are generating superior performance due to largely involvement in security selection.
Keywords: Net Assets Value, Benchmark, Market Timing, Selectivity, Alpha, Gamma Etc.
1. INTRODUCTION
Mutual funds are dynamic financial institutions which play a crucial role in an economy by mobilizing savings
and investing them in the capital markets. Therefore, the activities of Mutual funds have both short and long
term impact on the savings, capital markets and the national economy. Mutual funds, thus, assist the process of
financial deepings and intermediation. They mobilize funds in the savings market and act as complementary to
banking, at the same time they also compete banks and other financial institutions. In the process stock market
activities are also significantly influenced by Mutual funds.
Mutual funds have attained commanding heights in the financial scenario of India. Till 1986, there was only one
Mutual fund in our country because no other public or private sector institution was allowed by government of
India to join Mutual fund market. In 1987, the Banking Regulation Act was amended to allow the commercial
banks as well as Insurance sector to launch Mutual funds. The Mutual fund market added a new dimension in
1993 with the opening up of it to the private sector and foreign institutional investors. Now-a-days private as
well as public, domestic as well as foreign sector, 38 Mutual funds players are in the market with total investible
funds for Rs. 6,13,979 crore and having a number of 882 schemes, out of which 641 schemes are open ended,
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 417 of 427
202 schemes are close ended and 39 schemes are Interval fund as on 31
st
March, 2010.

In these days, saving for future is a main phenomena for Indians even a person is also interested for better
opportunity. Mutual funds are ideal vehicles for individual investors who don’t have the time, willingness or
ability to manage their own portfolio. Now these days’ different types of Mutual fund schemes are available in
the market, which provide aggressive return to an aggressive investor at a level of risk. But an unknown investor
is not aware about how to mobilize funds in the market & judge the ability of a fund manager. So, this paper
analyzes the fund manager ability to test the market timing of mutual funds schemes.
2. LITERATURE REVIEW
In view of large investor interest, the performance of Mutual fund managers needs continuously evaluated. A
series of empirical studies have been performed with the market timing skills of Mutual fund managers in USA,
Germany, UK, Netherlands, Belgium, Switzerland & Sweden. Most of the previous work finds little evidence
that fund managers possess market timing ability. Treynor and Mazuy developed a methodology in 1966 for
testing the market timing ability of Mutual fund manager. They had used 57 open-ended Mutual funds during
the period of 1953-1962. They found no evidence that the investment managers of any of the 57 Mutual funds
had successfully outguessed the market. Jensen (1968) evaluated the ability of the fund managers in selecting
the under valued securities. He concluded the sample of 115 Mutual funds, the fund managers were not able to
forecast security prices well enough to recover research expenses and fees. Henriksson and Merton (1981) had
developed a statistical measure for parametric and non-parametric tests of market timing ability of fund
managers. They suggested that if any mutual fund manager has an ability to forecast the future observation and
his forecasting was observable, the parametric test could be used without further assumption on distribution of
security returns. If his forecasting could not observable then, the parametric test can be used under the
assumption of either CAPM or multi factor return structure could be used. These specifications permitted to
mutual fund manager for identification and separation of gains of market timing skills. Ken and Jen (1979)
Veite and Cheney (1982) Henriksson (1984) and Chang and Lewellen (1984) evaluated the performance of the
Mutual fund managers in terms of their ability in market timing and selectivity. The conclusion of these studies
is that the fund managers did not possess these abilities. Even if any little evidence is there regarding selectivity,
the additional returns earned are not able to cover the research expenses. Keith Cuthbertson, Dirk Nitzsche and
Niall O'Sullivan (2010) test the market timing skills of UK equity and balanced mutual funds. The methodology
has used regression based tests of Treynor-Mazuy and Henriksson-Merton. They find a relatively small number
of funds (around 1%) demonstrate positive market timing ability at a 5% significance level while around 19% of
funds exhibit negative timing and on average funds miss-time the market. However, controlling for publicly

available information they find very little evidence of market timing ability based on private timing signals. In
terms of investment styles, there are a small number of successful positive market timers amongst Equity
Income and 'All Company' funds but not among either Small Stock funds or Balanced funds, although a few
small stock funds are found to time a small stock index rather than a broad market index.
Sarkar, Jaydeep, Majumdar and Sudipa (1994) evaluated the performance of only five close-ended growth
oriented schemes in terms of Mutual fund managers’ ability to strike a balance between risk and return for a
period of Feb. 1991 to Aug 1993, with particular emphasis on the sensational fluctuations in the Indian stock
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 418 of 427
market during the first quarter of 1992. The results indicate that the fund managers covered under study have not
been successful in reaping return in excess of the market or in insuring an efficient diversification of portfolio.
Significant divergences in performance were found during the period of the upsurge in stock prices. Amitabh
Gupta (2001) made a study on Investment management of Mutual funds. His main emphasis was to evaluate the
performance of Mutual fund schemes and test the market timing abilities of mutual funds manager over a period
of April 1, 1994 to March 31, 1999. Results of the study do not support the hypothesis. Nalini Prava Tripathi
(2006) made a study on Market timing abilities and Mutual fund performance on equity linked saving schemes.
Her study evaluates the market timing abilities of Indian fund managers of thirty-one tax planning schemes in
India over the period Dec., 1995 to Jan., 2004. The study indicate that the fund managers have not been
successful in reaping returns in excess of the market, rather they are timing the market in the wrong direction.
Sanjay Sehgal & Manoj Jhanwar (2008), evaluated the performance of selected equity based 57 Mutual fund
schemes for the period of Jan., 2000 to Dec., 2004. They conclude that the results timing ability, and to some
extent stock selectivity improve when they use daily instead of monthly data. They feel that higher observation
frequency captures the trading skills of more active fund managers in a better fashion. Their timing results are
not an outcome of any spurious statistical phenomenon.
The literature survey reveals that generally the Mutual fund managers are unable in stock selection and their
market timing ability is also poor. However, despite the existence of the Mutual fund industry for over five
decades in India, it is only in recent years that some efforts have been made to evaluate the Market timing ability
of Mutual funds. The sample period of most of the earlier studies was rather too small or some studies have been
conducted with specific schemes like either taking equity schemes or tax planning schemes. So, this study has
been examined to evaluate the Market Timing Ability of Mutual Funds by using different types of schemes.

3. OBJECTIVE OF THE STUDY
The main objective of the present study is to test the market timing abilities of the Mutual funds managers with
the following hypotheses:-
 Indian Mutual fund managers timing the market in right direction;
 Close ended fund timing the market efficiently as compare to open ended fund;
 Growth schemes fund are better performing as compare to other schemes fund.
4. RESEARCH METHODOLOGY
A sample of ninety eight Mutual funds schemes having different objectives, both from public as well as private
sector, have been selected to test the market timing abilities of the Indian fund managers. In this paper thirty
seven schemes have been taken from public sector Mutual funds (including UTI) while sixty one schemes have
taken from private sector Mutual funds. Of the total ninety eight schemes, eighteen schemes are close ended and
eighty schemes are open ended in nature. Aim wise schemes are sixty five growth schemes, four income
schemes, one balanced scheme and twenty eight tax planning schemes. The data used in study are comprise
weekly Net Assets Value both for close ended as well as open ended schemes for the five year period from April
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 419 of 427
1
st
, 1999 to March 31
st
, 2004. Appropriate adjustment have been made for bonus and right issues for each of the
sample schemes in order to make the data comparable over time. Bombay stock exchange (BSE) National Index
(1983-84=100) has used as a surrogate for market portfolio because it is a broad based index. The proxy for risk
free return used in this paper is the weekly yield on 91-day Treasury bill.
4.1.Measurement of Return on Mutual Fund Schemes
The average return on the sample Mutual fund schemes has been calculated as follows: -
(a) NAV based scheme return
R
pt
= [NAV

t
–NAV
t-1
] \ NAV
t-1
Where,
R
p
= return on fund;
NAV
t
= Net asset value at t;
NAV
t-1
= the corresponding value at t-1.
(b) Market price based scheme return
R
m
= MP
t
–MP
t-1
/MP
t-1
Where, MP
t
= market price of a scheme for current week
MP
t-1
= market price of a scheme for the preceding week

Average weekly returns are computed separately for the years 1999 to 2004. It may be noted here that financial
year is the reference period for present analysis.
Avr. R
p
= (R
p1
+ R
p2
+ R
p3
+ ……………+R
pn
)/N
Where, R
p1
, R
p2
, R
p3
………R
pn
are return for 1
st
, 2
nd
, 3rd and nth week based on NAVs
N = total number of weeks of a year.
Weekly market returns are calculated using the following equation.
Avr. R
m

= (R
m1
+ R
m2
+ R
m3
+ ……….R
mn
)/N
Where, Avr. R
m
= average weekly market return
R
m1
, R
m2
, R
m3
……R
mn
are returns for the 1
st
, 2
nd
, 3
rd
, and nth week.
This paper uses two modules - one of them was proposed by Treynor and Mazy (1966) and 2
nd
of them was

proposed by Henrikson and Merton (1981) to test the market timing abilities of Indian fund managers
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 420 of 427
4.2. Treynor and Mazuy Module
Treynor and Mazuy module was developed by Treynor and Mazuy (1966). They suggested that in order to
detect the market timing abilities of fund managers should add a squared term to the simple linear relationship
module which are given as under: -
R
p
-R
f
=  + (R
m
-R
f
) +  (R
m
-R
f
)
2
+ e
Where, R
p
= the return on the fund,
R
m
= the return on the market portfolio,
R
f

= the risk free term
e
p
= the random error term and;
,  and  are parameters of the model
The rational behind the equation is that if a fund manager is not engaged in market timing and concentrate at the
stock selection, the average beta of the fund should be constant. In that case fund return would be straight-line
linear relationship against market return. However, if the fund manager changes the cash position of the fund
and beta position of the fund on time, but not successes in properly assessing the direction of the market, then
plotting would still show a linear relationship.
4.3. Henriksson and Merton Module
Henriksson and Merton (1981) developed a statistical framework for both parametric and non-parametric tests
of market timing ability of fund managers. Henriksson and Merton module the fund beta would take only two
values- a large value of the market is expected to do well if market return is greater than risk free return (R
m
>R
f
)
and small value of the market not expected to do well if market return is less than risk free return (R
m
<R
f
).
Therefore, such relationship can be estimated by the following equation;
R
p
– R
f
=  +  (R
m

-R
f
) +  [D (R
m
- R
f
)] + e
Where, D is a dummy variable that equals 0 for (R
m
>R
f
) and –1 for (R
m
<R
f
)
Hence, the beta of the funds is  in an up markets and (-) in down market. Thus, under this module, 
indicates the difference between the two betas and a positive and significant value of  would indicate market
timing ability of the fund manager.
4.3.1. Estimation of Market Timing modules
Standard regression techniques have been used for estimating the parameters of two modules. To evaluate the
market timing ability of fund managers according to Henriksson and Merton module, it must be pointed out that
sample schemes utilized two stages for estimating beta value, one for up market and down market and second by
using dummy variable
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 421 of 427
4.3.2. Stage First
Henriksson & Merton Module calculates two type of beta values, one for up market, when R
m
>R

f
and another
one for down market when R
m
<R
f
. Thus, for estimating market timing ability of fund manager, it should be
estimated two betas values and divided the sample data into two part one for up market and another for down
market. This procedure reflects one limitation that it reduces the number of observations because sample data
divided into two parts for calculating two different beta values.
4.3.3. Stage Second
Second stage uses dummy variable in regression equation, which is shown in above Henriksson & Merton
formula. Here,  gives the value of fund in up markets and (-) gives the value for down market. The benefits
of using this procedure is that it does not reduce the number of observations and at the same time it provides two
beta values, one for up market and another for down market. Here, D is a dummy variable that equals 0 for
R
m
>R
f
and –1 for R
m
<R
f
.
5. EMPIRICAL EVALUATION
Table 1 provides the analysis of market timing ability of fund managers according to Treynor & Mazuy Module.
As discussed in the Treynor & Mazuy Module gamma is the measure of testing market timing ability of the fund
manager. If the t-value of gamma is positively significant at 5 percent statistical level then the fund manager is
timing the market right direction successfully. On the other hand, if t-value of gamma is significant at 5 percent
statistical level but negatively significant then fund manager is timing the market but in wrong direction. The

results of Table 1 indicate that out of total schemes 54% have timing the market and 46% schemes are unable to
timing the market.
Table 1 : Results of Treynor & Mazuy Module
Sr. No. Scheme Name Aim
Beta
value
Std.
Error
Beta
t-beta Gamma
Std.
Error
Gamma
t-
gamma
R
2
1 Alliance equity-D G 0.95 0.06 15.22 -1.52 0.86 -1.76 0.48
2 Alliance equity-G G 0.95 0.06 15.35 -1.51 0.86 -1.77 0.49
3 Alliance tax relief '96 TP 0.89 0.06 14.57 -1.12 0.84 -1.33 0.46
4 Birla Advantage-D G 0.75 0.06 12.32 -0.71 0.84 -0.84 0.38
5 Birla Advantage-G G 0.70 0.06 11.23 -0.08 0.87 -0.09 0.33
6 Birla tax plan '98 TP 0.74 0.07 11.16 -0.18 0.92 -0.20 0.33
7 BOB ELSS '95 TP 0.21 0.06 3.69 2.78 0.77 *3.62 0.09
8 BOB ELSS '96 TP 0.57 0.05 11.89 -2.59 0.67 *-3.88 0.39
9 BOB ELSS '97 TP 0.25 0.05 4.60 1.08 0.74 1.47 0.08
10 Bonanza exclusive G 0.25 0.06 4.07 -1.86 0.86 *-2.15 0.08
11 Can equity tax saver TP 0.07 0.09 0.75 0.58 1.26 0.46 0.00
12 Can expo-D G -0.17 0.08 -1.96 0.78 1.15 0.68 0.02
13 Can expo-G G -0.24 0.08 -2.94 0.58 1.13 0.51 0.04

14 Dhan tax saver'95 TP 0.49 0.05 9.89 1.82 0.68 *2.67 0.28
15 Dhan tax saver'96 TP 0.49 0.05 10.15 1.61 0.66 *2.42 0.29
16 DSPML Equity G 0.76 0.05 16.49 -1.98 0.64 *-3.095 0.53
17 Franklin India blue chip-D G 0.75 0.05 16.03 -1.81 0.65 *-2.78 0.52
18 Franklin India blue chip-G G 0.76 0.05 16.47 -1.57 0.64 *-2.45 0.53
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 422 of 427
19 Franklin India prima plus-D G 0.37 0.06 5.97 0.13 0.87 0.15 0.12
20 Franklin India prima plus-G G 0.74 0.05 15.97 -1.57 0.64 *-2.44 0.51
21 Franklin India prima-D G 0.68 0.05 12.34 -2.20 0.76 *-2.90 0.40
22 Franklin India prima-G G 0.68 0.05 12.34 -2.21 0.76 *-2.91 0.40
23 Franklin India tax shield '96 TP 0.73 0.05 14.02 -1.94 0.72 *-2.69 0.45
24 Franklin India tax shield '97 TP 0.72 0.05 15.14 -1.63 0.66 *-2.47 0.49
25 Franklin India tax shield '98 TP 0.83 0.08 10.86 -0.99 1.06 -0.93 0.32
26 Franklin Info tech-D I 0.36 0.11 3.26 2.70 1.52 1.77 0.05
27 Franklin Info tech-G I 0.53 0.11 4.91 2.02 1.49 1.36 0.09
28 GIC Fortune '94 G 0.14 0.06 2.34 0.47 0.82 0.58 0.02
29 GIC Growth plus II G 0.18 0.07 2.61 1.29 0.94 1.37 0.03
30 GIC Tax saver '95 TP 0.20 0.04 4.62 1.97 0.61 *3.23 0.10
31 HDFC Capital Builder-D G 0.09 0.05 1.93 -0.02 0.67 -0.03 0.01
32 HDFC Capital Builder-G G -0.03 0.05 -0.53 -0.02 0.67 -0.03 0.00
33 HDFC Equity-D G 0.62 0.05 13.84 -1.74 0.62 *-2.78 0.45
34 HDFC Equity-G G 0.32 0.06 5.55 0.85 0.79 1.07 0.11
35 HDFC Tax saver-D TP -0.02 0.06 -0.30 0.93 0.83 1.12 0.01
36 HDFC Tax saver-G TP -0.04 0.06 -0.68 0.67 0.84 0.80 0.00
37 HDFC Top 200-D G 0.65 0.04 14.75 -2.02 0.61 *-3.30 0.48
38 HDFC Top 200-G G 0.65 0.04 14.60 -2.08 0.61 *-3.39 0.48
39 JM Basic I 0.04 0.09 0.47 0.30 1.22 0.25 0.00
40 JM Equity-D G 0.06 0.07 0.88 0.39 0.90 0.43 0.00
41 JM Equity-G G 0.32 0.06 5.11 0.64 0.87 0.73 0.09

42 Kotak 30-D G 0.29 0.06 5.29 -1.35 0.77 -1.75 0.11
43 Kotak 30-G G 0.29 0.06 5.29 -1.35 0.77 -1.75 0.11
44 Libra tax shield '96 TP 0.47 0.08 6.05 -1.47 1.07 -1.38 0.14
45 LIC MF Equity-D G 0.72 0.04 17.07 -1.43 0.59 *-2.43 0.74
46 LIC MF Equity-g G 0.72 0.04 17.02 -1.44 0.59 *-2.44 0.54
47 LIC MF Growth G 0.03 0.07 0.41 0.18 0.91 0.20 0.00
48 LIC MF Tax plan-D TP 0.22 0.06 3.50 0.74 0.86 0.86 0.05
49 LIC MF Tax plan-G TP 0.22 0.06 3.46 0.73 0.86 0.85 0.05
50 Magnum Balenced-G B 0.24 0.07 3.44 -1.66 0.97 -1.72 0.06
51 Magnum equity G 0.45 0.08 5.38 0.77 1.15 0.67 0.10
52 Magnum Global G 0.11 0.08 1.37 0.98 1.16 0.85 0.01
53 Magnum Multiplier plus G 0.30 0.09 3.37 -1.66 1.24 -1.34 0.05
54 Magnum tax gain TP 0.91 0.08 11.02 -3.20 1.14 *-2.80 0.35
55 MELS '95 TP 0.14 0.08 1.72 1.03 1.08 0.95 0.01
56 MELS '96 TP 0.04 0.06 0.65 0.35 0.85 0.41 0.00
57 Morgan Stanley Growth G 0.42 0.05 8.08 1.18 0.72 1.63 0.20
58 Principal equity-D G 0.10 0.06 1.72 1.18 0.81 1.46 0.02
59 Principal equity-G G 0.12 0.06 2.00 1.23 0.82 1.50 0.02
60 Principal personal tax saver TP 0.23 0.06 3.53 -0.30 0.89 -0.33 0.05
61 Principal tax savings TP 0.75 0.05 14.25 -0.32 0.73 -0.44 0.45
62 Prudencial ICICI Growth-D G 0.11 0.08 1.38 -1.47 1.05 -1.40 0.02
63 Prudencial ICICI Growth-G G 0.82 0.05 15.35 -1.78 0.74 *-2.40 0.49
64 Prudencial ICICI power-D G 0.22 0.07 3.03 -0.38 0.98 -0.38 0.04
65 Prudencial ICICI power-G G 0.22 0.07 3.03 -0.38 0.98 -0.38 0.04
66 Reliance Growth-Bonus G 0.15 0.08 1.95 2.07 1.05 1.97 0.03
67 Reliance Growth-D G 0.11 0.08 1.43 1.02 1.04 0.99 0.01
68 Reliance Growth-G G -0.03 0.08 -0.42 -0.50 1.05 -0.47 0.00
69 Reliance vision-Bonus G 0.14 0.07 2.08 1.49 0.91 1.64 0.03
70 Reliance vision-D G 0.15 0.07 2.34 1.68 0.91 1.85 0.03
71 Reliance vision-G G 0.10 0.07 1.45 1.44 0.91 1.59 0.02

72 Sahara tax gain-D TP 0.18 0.08 2.20 -0.44 1.10 -0.40 0.02
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 423 of 427
73 Sahara tax gain-G TP 0.43 0.08 5.52 0.14 1.07 0.13 0.11
74 Sundaram Growth-D G 0.70 0.04 16.55 -1.53 0.59 *-2.61 0.53
75 Sundaram Growth-G G 0.70 0.04 16.53 -1.53 0.59 *-2.61 0.53
76 Sundaram tax saver '97 TP 0.72 0.04 16.19 -1.56 0.61 *-2.54 0.52
77 Sundaram tax saver '98 TP 0.70 0.04 15.94 -1.41 0.61 *-2.31 0.51
78 Tata Growth-G G 0.21 0.04 4.77 1.01 0.59 1.70 0.09
79 Tata pure equity-D G 0.39 0.07 5.59 1.36 0.97 1.41 0.11
80 Tata pure equity-G G 0.39 0.07 5.60 1.37 0.97 1.41 0.11
81 Tata tax saving fund TP 0.00 0.09 -0.01 1.64 1.22 1.35 0.01
82 Taurus discovery stock G 0.16 0.08 2.07 0.08 1.09 0.07 0.02
83 Taurus Star share G 0.06 0.07 0.83 2.00 1.02 1.96 0.02
84 Templeton India Growth-D G 0.69 0.04 17.30 -0.97 0.55 -1.77 0.55
85 Templeton India Growth-G G 0.69 0.04 17.34 -0.97 0.55 -1.76 0.55
86 Unit Scheme '92 G 0.39 0.06 6.15 2.23 0.87 *2.56 0.14
87 UTI Grandmaster G 0.78 0.05 15.40 1.78 0.70 *2.53 0.48
88 UTI Index select equity G 0.27 0.06 4.18 1.36 0.89 1.52 0.07
89 UTI Master Growth G 0.24 0.07 3.49 0.39 0.93 0.41 0.05
90 UTI Master Index I 0.83 0.04 23.56 -0.95 0.49 -1.95 0.69
91 UTI Master plus '91 G 0.72 0.04 17.13 0.92 0.58 1.57 0.53
92 UTI Master value-Bonus G 0.31 0.06 5.21 0.62 0.82 0.75 0.10
93 UTI Master value-Income G 0.31 0.06 5.21 0.62 0.82 0.76 0.10
94 UTI Master gain '92 G 0.70 0.04 15.99 0.78 0.61 1.28 0.50
95 UTI Master share G 0.42 0.05 7.66 -0.02 0.75 -0.02 0.19
96 UTI MEP '98 TP 0.37 0.07 5.05 1.06 1.00 1.06 0.10
97 UTI MNC G 0.51 0.04 12.63 -0.37 0.56 -0.67 0.39
98 UTI PEF G 0.32 0.05 6.45 1.20 0.69 1.73 0.14
* Significant at 5% level

But, only in 6% schemes fund managers are able in timing the market correctly in right direction. Schemes,
which timing the market correctly, are BOB ELSS ’95, Dhan tax saver ’95, Dhan tax saver ’96, GIC tax saver
’95, Unit scheme ’92 and UTI Grandmaster. Out of total close-ended schemes, 22% close-ended schemes are
there and out of total open-ended schemes, 2.5% schemes are there in right timer. It indicates that close ended
schemes fund managers are timing the market perfectly as compare to open ended schemes fund managers. Out
of total tax planning schemes 14% schemes are right timer and out of total growth-oriented schemes only 3%
schemes are right timer. Its mean growth schemes fund managers are not efficiently timing the market as
compare to other schemes fund managers. While, out of total schemes 22% schemes have significant t-gamma
at 5% level but have negative value. It shows that fund managers of these schemes are able in timing the market
but in wrong direction. These wrong timer fund schemes are BOB ELSS ’96, Bonanza Exclusive, DSPML
equity, Franklin India blue chip D, Franklin India blue chip G, Franklin India prima plus G, Franklin India
prima D, Franklin India prima G, Franklin India tax shield ’96, Franklin India tax shield ’97, HDFC equity D,
HDFC Top 200 D, HDFC Top 200 G, LIC MF equity D, LIC MF equity G, Magnum tax gain, Prudential ICICI
growth G, Sundaram growth D, Sundaram growth G, Sundaram tax saver ’97 and Sundaram tax saver ’98. Out
of total wrong timer schemes, 19% are close-ended schemes and 81% schemes are open ended in nature. In
wrong timer schemes 29% schemes are tax planning schemes and 71% schemes are growth schemes. Thus, the
result of Treynor & Mazuy module is not reasonable. Only in case of few schemes fund managers are found
timing the market successfully in right direction while, in case of one fourth of sample schemes they are timing
the market in the wrong direction. So, the result of Treynor & Mazuy module is unable to achieve the hypothesis
that Indian fund managers show different market timing abilities. But there is evidence which indicates that
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 424 of 427
close ended schemes fund managers are timing the market perfectly as compare to open ended schemes fund
managers. Growth schemes fund managers are not efficiently timing the market as compare to other schemes
fund managers.
Table 2 presents the analysis of market timing ability of fund managers according to Henriksson & Merton
Module. Gamma is the measure of testing market timing ability of the fund manager in Henriksson & Merton
module also. If the t-value of gamma is positively significant at 5 percent statistical level then the fund manager
is timing the market in right direction successfully. If t-value of gamma is significant at 5 percent statistical level
but negatively significant then fund manager is unable in timing the market. The results of table 6.2 indicate that

out of total schemes 48% schemes timing the market and 52% schemes are unable to timing the market.
Table 2 : Results of Henriksson & Merton Module
Sr.
No.
Scheme Name Aim
Beta
up-
market
Std.
Error
Beta
t-beta
up
y=B1-
B2
Std.
Error
Gamma
t-gamma R2
1 Alliance equity-D G 0.74 0.11 6.46 -0.44 0.19 *-2.31 0.49
2 Alliance equity-G G 0.74 0.11 6.52 -0.44 0.19 *-2.33 0.49
3 Alliance tax relief '96 TP 0.71 0.11 6.39 -0.36 0.19 -1.94 0.46
4 Birla Advantage-D G 0.59 0.11 5.35 -0.31 0.18 -1.69 0.38
5 Birla Advantage-G G 0.59 0.11 5.12 -0.23 0.19 -1.21 0.33
6 Birla tax plan '98 TP 0.61 0.12 5.03 -0.26 0.20 -1.27 0.33
7 BOB ELSS '95 TP 0.48 0.10 4.68 0.57 0.17 *3.36 0.08
8 BOB ELSS '96 TP 0.28 0.09 3.16 -0.61 0.15 *-4.19 0.40
9 BOB ELSS '97 TP 0.35 0.10 3.56 0.22 0.16 1.32 0.08
10 Bonanza exclusive G 0.10 0.11 0.89 -0.32 0.19 -1.69 0.08
11 Can equity tax saver TP 0.15 0.17 0.87 0.16 0.28 0.57 0.00

12 Can expo-D G -0.16 0.15 -1.06 0.01 0.26 0.06 0.02
13 Can expo-G G -0.26 0.15 -1.74 -0.03 0.25 -0.13 0.04
14 Dhan tax saver'95 TP 0.62 0.09 6.82 0.29 0.15 1.91 0.27
15 Dhan tax saver'96 TP 0.62 0.09 7.02 0.29 0.15 1.95 0.29
16 DSPML Equity G 0.54 0.08 6.33 -0.47 0.14 *-3.34 0.53
17 Franklin India blue chip-D G 0.53 0.09 6.21 -0.46 0.14 *-3.20 0.52
18 Franklin India blue chip-G G 0.57 0.08 6.77 -0.39 0.14 *-2.79 0.53
19 Franklin India prima plus-D G 0.35 0.11 3.01 -0.05 0.19 -0.28 0.12
20 Franklin India prima plus-G G 0.54 0.08 6.34 -0.42 0.14 *-2.99 0.52
21 Franklin India prima-D G 0.34 0.10 3.48 -0.68 0.16 *-4.14 0.41
22 Franklin India prima-G G 0.34 0.10 3.48 -0.68 0.16 *-4.15 0.41
23 Franklin India tax shield '96 TP 0.47 0.10 4.99 -0.53 0.16 *-3.36 0.46
24 Franklin India tax shield '97 TP 0.52 0.09 5.96 -0.42 0.15 *-2.89 0.49
25 Franklin India tax shield '98 TP 0.66 0.14 4.70 -0.35 0.23 -1.51 0.32
26 Franklin Info tech-D I 0.63 0.20 3.11 0.57 0.34 1.70 0.05
27 Franklin Info tech-G I 0.72 0.20 3.62 0.40 0.33 1.21 0.09
28 GIC Fortune '94 G 0.19 0.11 1.75 0.11 0.18 0.60 0.02
29 GIC Growth plus II G 0.28 0.13 2.23 0.22 0.21 1.04 0.03
30 GIC Tax saver '95 TP 0.41 0.08 5.02 0.42 0.13 *3.14 0.10
31 HDFC Capital Builder-D G 0.07 0.09 0.76 -0.05 0.15 -0.35 0.02
32 HDFC Capital Builder-G G -0.01 0.09 -0.13 0.03 0.15 0.19 0.00
33 HDFC Equity-D G 0.40 0.08 4.83 -0.47 0.14 *-3.44 0.45
34 HDFC Equity-G G 0.39 0.11 3.72 0.16 0.18 0.90 0.11
35 HDFC Tax saver-D TP 0.09 0.11 0.81 0.22 0.18 1.22 0.01
36 HDFC Tax saver-G TP 0.05 0.11 0.47 0.19 0.19 1.05 0.01
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37 HDFC Top 200-D G 0.42 0.08 5.22 -0.48 0.13 *-3.55 0.48
38 HDFC Top 200-G G 0.41 0.08 5.04 -0.50 0.13 *-3.69 0.48
39 JM Basic I 0.07 0.16 0.45 0.07 0.27 0.24 0.00

40 JM Equity-D G 0.31 0.12 2.71 -0.01 0.19 -0.04 0.00
41 JM Equity-G G 0.31 0.12 2.71 -0.01 0.19 -0.04 0.09
42 Kotak 30-D G 0.13 0.10 1.29 -0.34 0.17 *-1.99 0.12
43 Kotak 30-G G 0.13 0.10 1.29 -0.34 0.17 *-1.99 0.12
44 Libra tax shield '96 TP 0.33 0.14 2.34 -0.28 0.24 -1.19 0.13
45 LIC MF Equity-D G 0.52 0.08 6.77 -0.41 0.13 *-3.22 0.55
46 LIC MF Equity-g G 0.52 0.08 6.72 -0.42 0.13 *-3.25 0.55
47 LIC MF Growth G 0.10 0.12 0.80 0.14 0.20 0.69 0.00
48 LIC MF Tax plan-D TP 0.27 0.11 2.40 0.12 0.19 0.64 0.05
49 LIC MF Tax plan-G TP 0.27 0.11 2.38 0.12 0.19 0.64 0.04
50 Magnum Balenced-G B 0.10 0.13 0.75 -0.30 0.21 -1.42 0.06
51 Magnum equity G 0.51 0.15 3.30 0.12 0.26 0.49 0.10
52 Magnum Global G 0.22 0.15 1.41 0.22 0.26 0.85 0.01
53 Magnum Multiplier plus G 0.16 0.16 0.96 -0.30 0.27 -1.11 0.05
54 Magnum tax gain TP 0.46 0.15 3.10 -0.92 0.25 *-3.68 0.36
55 MELS '95 TP 0.22 0.14 1.51 0.18 0.24 0.73 0.01
56 MELS '96 TP 0.03 0.11 0.28 -0.01 0.19 -0.07 0.00
57 Morgan Stanley Growth G 0.52 0.10 5.49 0.22 0.16 1.37 0.20
58 Principal equity-D G 0.23 0.11 2.12 0.27 0.18 1.49 0.02
59 Principal equity-G G 0.25 0.11 2.27 0.27 0.18 1.49 0.02
60 Principal personal tax saver TP 0.18 0.12 1.54 -0.09 0.20 -0.48 0.05
61 Principal tax savings TP 0.73 0.10 7.53 -0.04 0.16 -0.28 0.45
62 Prudencial ICICI Growth-D G -0.02 0.14 -0.13 -0.27 0.24 -1.13 0.01
63 Prudencial ICICI Growth-G G 0.60 0.10 6.12 -0.46 0.16 *-2.84 0.50
64 Prudencial ICICI power-D G 0.18 0.13 1.35 -0.09 0.22 -0.40 0.04
65 Prudencial ICICI power-G G 0.18 0.13 1.36 -0.09 0.22 -0.40 0.04
66 Reliance Growth-Bonus G 0.35 0.14 2.50 0.43 0.24 1.82 0.03
67 Reliance Growth-D G 0.15 0.14 1.08 0.09 0.23 0.41 0.01
68 Reliance Growth-G G -0.12 0.14 -0.86 -0.18 0.23 -0.77 0.00
69 Reliance vision-Bonus G 0.28 0.12 2.30 0.30 0.20 1.46 0.02

70 Reliance vision-D G 0.29 0.12 2.39 0.29 0.20 1.42 0.03
71 Reliance vision-G G 0.21 0.12 1.75 0.25 0.20 1.24 0.01
72 Sahara tax gain-D TP 0.10 0.15 0.67 -0.16 0.24 -0.66 0.02
73 Sahara tax gain-G TP 0.38 0.14 2.66 -0.09 0.24 -0.39 0.11
74 Sundaram Growth-D G 0.49 0.08 6.38 -0.43 0.13 *-3.36 0.54
75 Sundaram Growth-G G 0.49 0.08 6.38 -0.43 0.13 *-3.35 0.54
76 Sundaram tax saver '97 TP 0.50 0.08 6.20 -0.45 0.13 *-3.35 0.53
77 Sundaram tax saver '98 TP 0.50 0.08 6.26 -0.41 0.13 *-3.08 0.52
78 Tata Growth-G G 0.29 0.08 3.64 0.17 0.13 1.31 0.09
79 Tata pure equity-D G 0.54 0.13 4.17 0.31 0.21 1.43 0.11
80 Tata pure equity-G G 0.54 0.13 4.18 0.31 0.21 1.44 0.11
81 Tata tax saving fund TP 0.18 0.16 1.08 0.37 0.27 1.37 0.01
82 Taurus discovery stock G 0.23 0.14 1.58 0.13 0.24 0.55 0.02
83 Taurus Star share G 0.27 0.14 1.96 0.43 0.23 1.90 0.02
84 Templeton India Growth-D G 0.55 0.07 7.64 -0.27 0.12 *-2.25 0.55
85 Templeton India Growth-G G 0.56 0.07 7.68 -0.27 0.12 *-2.23 0.55
86 Unit Scheme '92 G 0.54 0.12 4.64 0.33 0.19 1.71 0.13
87 UTI Grandmaster G 0.87 0.09 9.28 0.21 0.16 1.31 0.47
88 UTI Index select equity G 0.42 0.12 3.58 0.32 0.20 1.63 0.07
89 UTI Master Growth G 0.24 0.12 1.95 0.01 0.21 0.07 0.05
90 UTI Master Index I 0.72 0.06 11.18 -0.22 0.11 *-2.08 0.69
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91 UTI Master plus '91 G 0.78 0.08 9.97 0.12 0.13 0.91 0.53
92 UTI Master value-Bonus G 0.34 0.11 3.15 0.07 0.18 0.38 0.10
93 UTI Master value-Income G 0.34 0.11 3.15 0.07 0.18 0.38 0.10
94 UTI Master gain '92 G 0.76 0.08 9.37 0.12 0.13 0.89 0.50
95 UTI Master share G 0.43 0.10 4.31 0.03 0.17 0.16 0.19
96 UTI MEP '98 TP 0.47 0.13 3.52 0.21 0.22 0.95 0.10
97 UTI MNC G 0.44 0.07 5.96 -0.14 0.12 -1.14 0.39

98 UTI PEF G 0.38 0.09 4.11 0.13 0.15 0.84 0.14
* Significant at 5% level
Out of total schemes, only 2% schemes are timing the market in right direction. Name of these schemes are
BOB ELSS ’95, GIC tax saver ’95. Out of total close-ended schemes, 6% close-ended scheme is there and out
of total open-ended schemes, 1.25% open-ended scheme is there in right timer. Results of Henriksson & Merton
Module also indicate that close ended schemes fund managers are timing the market in right direction as
compare to open ended schemes fund managers. Objective wise, all right timer schemes are from tax planning
schemes. It indicates that growth schemes fund manager are not efficiently timing the market as compare to
other schemes fund managers. While, out of total schemes 28% schemes are timing the market in wrong
direction. These wrong timer fund schemes are Alliance equity D, Alliance equity G, BOB ELSS ’96, DSPML
equity, Franklin India blue chip D, Franklin India blue chip G, Franklin India prima plus G, Franklin India
prima D, Franklin India prima G, Franklin India tax shield ’96, Franklin India tax shield ’97, HDFC equity D,
HDFC Top 200 D, HDFC Top 200 G, Kotak 30 D, Kotak 30 G, LIC MF equity D, LIC MF equity G, Magnum
tax gain, Prudential ICICI growth G, Sundaram growth D, Sundaram growth G, Sundaram tax saver ’97,
Sundaram tax saver ’98, Templeton India growth D, Templeton India growth G and UTI Master Index. Out of
total wrong timer schemes, 15% schemes are close-ended schemes and 85% schemes are open ended in nature.
There are 22% tax-planning schemes; 4% income scheme and 74% growth schemes are in the category of
wrong timer. Thus, the result of Henriksson & Merton module is not favorable that Indian fund managers show
different market timing abilities. Only in case of 2% schemes fund managers are timing the market successfully
in right direction while, there is evidence that in case of 28% schemes managers are timing the market in the
wrong direction. So, the result of Henriksson & Merton module is unable to achieve the hypothesis that Indian
fund managers show different market timing abilities. But there is evidence which indicates that close ended
schemes fund managers are timing the market perfectly as compare to open ended schemes fund managers.
Growth schemes fund managers are not efficiently timing the market as compare to other schemes fund
managers.
6. CONCLUSION
This paper analyzes Indian mutual fund managers’ market timing ability for the period of 1999-2004 using
Jensen & Mazuy Module and Henriksson & Merton Module. To achieve the goal a sample of ninety eight
mutual fund schemes having different investment objectives, both from public as well as private sector, have
been selected. The study finds that Indian mutual fund managers are unable to test the market timing of the

mutual fund schemes because results of both modules are unable to achieve the hypotheses that Indian fund
managers show different market timing abilities. Out of total right timer schemes in both the modules, only 1/3
schemes fund managers are able in timing the market in right direction & out of total wrong timers 74%
schemes are common in both modules. But there is evidence which indicates that close ended schemes fund
Surinder Kr. Miglani / VSRD International Journal of Business & Management Research Vol. 1 (7), 2011
Page 427 of 427
managers are timing the market perfectly as compare to open ended schemes fund managers in both the
modules. Growth schemes fund managers are not efficiently timing the market as compare to other schemes
fund managers.
These results indicate that Indian Fund managers are not seriously engaged in any market timing abilities and
they relying only on stock selection skills. They are generating superior performance due to largely involvement
in security selection but they are failing in timing the market correctly. These results are similar to results of
other researchers with similar type of data from Indian Mutual Funds, to them provided earlier.
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