Controlling for Fixed-Income Exposure in Portfolio Evaluation: Evidence from Hybrid Mutual Funds

Posted: 25 Jan 2009

See all articles by George Comer

George Comer

Georgetown University - Department of Finance

Norris L. Larrymore

Northwestern University

Javier Rodriguez

University of Puerto Rico; University of Puerto Rico - Escuela Graduada de Administración de Empresas (EGAE)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2009

Abstract

We examine whether explicitly controlling for the fixed-income exposure of mutual funds affects conclusions drawn in performance assessment. We focus on daily return data from two hybrid mutual fund samples. Comparing abnormal performance estimates from the Carhart (1997) model to extensions designed to correct for bond holdings, we find that the estimates within one of our samples change from positive to significantly negative. Additional evidence indicates that cash flows to the funds are more closely correlated with the traditional Carhart measure, clearly indicating that the absence of bond indices misleads investors who use a fund's risk-adjusted performance as the basis for investment decisions.

Keywords: G11, G12

Suggested Citation

Comer, George and Larrymore, Norris L. and Rodriguez, Javier, Controlling for Fixed-Income Exposure in Portfolio Evaluation: Evidence from Hybrid Mutual Funds (February 2009). The Review of Financial Studies, Vol. 22, Issue 2, pp. 481-507, 2009, Available at SSRN: https://ssrn.com/abstract=1331865 or http://dx.doi.org/hhm087

George Comer (Contact Author)

Georgetown University - Department of Finance ( email )

585 Hariri Building
Georgetown University
Washington, DC 20057
United States
202-687-0676 (Phone)

Norris L. Larrymore

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
224-420-6120 (Phone)
847-491-5719 (Fax)

Javier Rodriguez

University of Puerto Rico ( email )

Río Piedras
Puerto Rico

University of Puerto Rico - Escuela Graduada de Administración de Empresas (EGAE) ( email )

San Juan, 00918
Puerto Rico

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