Pitfalls and Perils of Financial Innovation: The Use of CDS by Corporate Bond Funds

35 Pages Posted: 22 Jan 2011 Last revised: 17 Feb 2015

See all articles by Tim Adam

Tim Adam

Humboldt University

Andre Guettler

University of Ulm - Department of Mathematics and Economics; Halle Institute for Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: January 14, 2015

Abstract

We use the financial crisis of 2007–2009 as a laboratory to examine the costs and benefits of teams versus single managers in asset management. We find that when a fund uses complex trading strategies involving the use of CDS team-managed funds outperform solo-managed funds. This may be due to the greater diversity of expertise, experience and skill of teams relative to single managers. During the financial crisis, however, the performance premium of teams becomes negative, which may be because of the slower decision times of teams, which are especially costly during times of rapidly changing market conditions.

Keywords: Mutual funds, management teams, financial crisis, credit default swaps, performance, market timing

JEL Classification: G11, G15, G23

Suggested Citation

Adam, Tim and Guettler, Andre, Pitfalls and Perils of Financial Innovation: The Use of CDS by Corporate Bond Funds (January 14, 2015). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1744978 or http://dx.doi.org/10.2139/ssrn.1744978

Tim Adam

Humboldt University ( email )

Dorotheentr. 1
Berlin, Berlin 10099
Germany
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Andre Guettler (Contact Author)

University of Ulm - Department of Mathematics and Economics ( email )

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Ulm, D-89081
Germany

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
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D-06017 Halle, 06108
Germany

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