Fundamental Variables, Apt, and Bond Fund Performance

60 Pages Posted: 11 Nov 2008

See all articles by Edwin J. Elton

Edwin J. Elton

New York University (NYU) - Department of Finance

Martin J. Gruber

New York University (NYU) - Department of Finance

Christopher R. Blake

Fordham University - Gabelli School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 1995

Abstract

In this paper, we develop relative pricing (APT) models that are successful in explaining expected returns in the bond market. We utilize indexes as well as unanticipated changes in economic variables as factors driving security returns. An innovation in this paper is the measurement of the economic factors as changes in forecasts. The return indexes are the most important variables in explaining the time series of returns. However, the addition of the economic variables leads to a large improvement in the explanation of expected returns. Furthermore, when we examine the percentage of expected returns explained by each of the variables, the economic variables are much more significant than all indexes with the exception of an aggregate index. We utilize our relative pricing models to examine the performance of bond funds. Bond funds underperform the returns predicted by the relative pricing models by the amount of expenses, on average.

Suggested Citation

Elton, Edwin J. and Gruber, Martin J. and Blake, Christopher R., Fundamental Variables, Apt, and Bond Fund Performance (March 1995). NYU Working Paper No. FIN-94-028. Available at SSRN: https://ssrn.com/abstract=1299451

Edwin J. Elton (Contact Author)

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Ste 9-190
New York, NY 10012-1126
United States
212-998-0361 (Phone)
212-995-4233 (Fax)

Martin J. Gruber

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Ste 9-190
New York, NY 10012-1126
United States
212-998-0333 (Phone)
212-995-4233 (Fax)

Christopher R. Blake

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Lowenstein Building
New York, NY 10023
United States
212-636-6750 (Phone)

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