Maturity-Matched Bond Fund Performance

46 Pages Posted: 2 Dec 2016 Last revised: 11 Jan 2020

See all articles by Markus Natter

Markus Natter

University of Augsburg

Martin Rohleder

University of Augsburg

Marco Wilkens

University of Augsburg

Date Written: January 10, 2020

Abstract

We uncover systematic maturity-mismatch errors in the usual linear bond fund performance measures. By measuring the interest rate risk of each fund against the same passive benchmark, usually a broad, medium-maturity index, bond fund alphas are systematically over- or underestimated, depending on funds’ maturity-mismatches with the benchmark and on external changes of the yield curve. Thus, alphas fail at measuring funds’ internal management performance correctly. To consider funds’ maturities to avoid this error, we use individual maturity-matched benchmarks and show that this approach effectively eliminates these maturity-mismatch errors in bond fund alphas.

Keywords: Bond funds, performance, maturity mismatch, yield curve, interest rate risk

JEL Classification: G20, G11, G23

Suggested Citation

Natter, Markus and Rohleder, Martin and Wilkens, Marco, Maturity-Matched Bond Fund Performance (January 10, 2020). Available at SSRN: https://ssrn.com/abstract=2877630 or http://dx.doi.org/10.2139/ssrn.2877630

Markus Natter

University of Augsburg ( email )

Universitaetsstrasse 16
Augsburg, 86159
Germany
+49 821 598 4497 (Phone)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/mitarbeiter/natter_markus/

Martin Rohleder (Contact Author)

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4120 (Phone)

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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