Testing of causality relationship between Indian and Australian mutual funds performance: standard vs customized benchmarks

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Most Australian domestic investors rely on fund managers, and in India, this is not the same as they are primarily in direct investment rather than indirect. The study attempts to investigate the causal relationship between the returns of the standard indices, namely BSE500 and ASX300, and customized indices, MIMF and MAMF, for both India and Australia. The study uses econometric tools and techniques such as unit root test, vector error correction model, Wald test, Johansen co-integration, and model efficacy assumptions on the historical closing NAV of the selected mutual fund schemes for the period from April 2008 to March 2018. The econometric investigation using Johansen’s Co-Integration test confirmed the co-integration between BSE500, ASX300 and customized indices. Empirical evidence suggests that the Australian customized MAMF index is not Granger-caused by the Indian customized index MIMF, and therefore the MIMF index value cannot be used to predict the future rate of index MAMF returns, and vice versa.

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    • Figure 1. MIMF and BSE500 quarterly returns from April 2008 to March 2018
    • Figure 2. ASX300 and MAMF quarterly returns from April 2008 to March 2018
    • Figure 3. Normality test for MIMF and BSE500
    • Figure 4. Normality test for MAMF and ASX300
    • Table 1. Country-wise contribution of the world’s largest 500 asset managers
    • Table 2. Worldwide open-end funds – total net assets
    • Table 3. ADF test – MIMF and BSE500
    • Table 4. ADF test – ASX300 and MAMF
    • Table 5. Johansen co-integration test outcome – MIMF and BSE500
    • Table 6. Johansen co-integration test outcome – MAMF and ASX300
    • Table 7. Co-integrating vector of MIMF and BSE500
    • Table 8. Long-run causality variable (least squares) of MIMF and BSE500
    • Table 9. Long-run causality variable (least squares) of MAMF and ASX300
    • Table 10. Wald test results for MIMF and BSE500 and MAMF and ASX300
    • Table 11. Heteroskedasticity and serial correlation test
    • Table 12. Granger causality test
    • Conceptualization
      B. R. Manjunath, J. K. Raju
    • Data curation
      B. R. Manjunath, M. Rehaman
    • Formal Analysis
      B. R. Manjunath
    • Investigation
      B. R. Manjunath
    • Methodology
      B. R. Manjunath
    • Software
      B. R. Manjunath
    • Writing – original draft
      B. R. Manjunath, M. Rehaman
    • Writing – review & editing
      B. R. Manjunath, J. K. Raju, M. Rehaman
    • Supervision
      J. K. Raju
    • Validation
      J. K. Raju
    • Project administration
      M. Rehaman