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Mutual fund asset allocation during COVID-19: evidence from an emerging market

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  • Joshy Jacob
  • Nilesh Gupta
  • Balagopal Gopalakrishnan

Abstract

The paper examines the investment decisions of Indian equity mutual funds during various stages of the COVID-19 pandemic with monthly portfolio holdings. We find that funds favoured firms with lower risk, higher financial flexibility, and larger size during the early months of the pandemic. The preference for relatively low-risk firms, which reverses later, suggests a reallocation towards safer assets. Funds also preferred growth firms to value firms as the latter with greater invested capital are more vulnerable to the shock. Institutional investors also favoured group-affiliated firms throughout, reflecting their lower crisis vulnerability. We find that the stocks preferred by funds during the pandemic outperform others in the long run. The paper brings out key firm characteristics that impact mutual fund asset allocation during extreme uncertainty.

Suggested Citation

  • Joshy Jacob & Nilesh Gupta & Balagopal Gopalakrishnan, 2024. "Mutual fund asset allocation during COVID-19: evidence from an emerging market," Applied Economics, Taylor & Francis Journals, vol. 56(13), pages 1545-1563, March.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:13:p:1545-1563
    DOI: 10.1080/00036846.2023.2176458
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