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A MUTUAL FUND INDEX APPROACH TO TESTING MARKET EFFICIENCY: A CASE OF NIFTY INDEX

Over the past two decades mutual funds have emerged as one of the key participant in Indian equity markets. Apart from attracting retail investors and supplying liquidity in the markets, mutual funds have also provided illustrations for theoretical experiments. One such theoretical experiment is testing of capital market efficiency using mutual fund portfolio performance. Market efficiency as a concept proposed by Eugene Fama in 1970 and went onto prove to be one of the pivotal contribution in asset pricing model developments, proven rightfully with earning a Nobel award to Fama. This study uses the approach to testing efficiency of Indian Capital Markets by developing a mutual fund index, developed on the basis of NAV changes of 20 selected funds, existing in the last 11 years. Such an index’s performance is then compared with the performance of CNX NIFTY index using statistical tools like descriptive statistics and a student’s t-test. It has been concluded based on above analysis that the outperformance of mutual funds over market are statistically insignificant and the Indian equity market is found to be efficient and does not provide a consistent abnormal return earning opportunity to any market participant.