ABSTRACT
Recently investments in mutual funds have been increasing rapidly. The mutual funds have also played a significant role in an economy. Many studies have developed models for performance evaluation and focused on developed markets, especially in the US. Only a few examine whether findings carry over to the emerging markets as well. This paper has proposed an alternative method to examine mutual funds performance by using the MS-VAR model. This model allows some parameters varying along with the business cycle. The results from this model, therefore, would help provide a better understanding of mutual fund performance; e.g., how it reacts to different periods of the business cycle. The conjecture of this paper is the reaction of funds would be different depending on the business cycle.
Keywords
Business cycle; Markov switching model; Mutual funds