Maturity-Matched Bond Fund Performance

43 Pages Posted: 2 Dec 2016 Last revised: 26 Mar 2019

See all articles by Markus Natter

Markus Natter

University of Augsburg

Martin Rohleder

University of Augsburg

Marco Wilkens

University of Augsburg

Date Written: March 21, 2019

Abstract

We uncover systematic errors in bond fund performance measures and show how to avoid them. Maturity-mismatch errors arise from the incorrect model assumption that interest rates change identically across maturities. By using the same passive benchmark for all funds, irrespective of their maturities, alphas are systematically either over- or underestimated, depending on funds’ maturity-mismatches and the concrete change of the form of the yield curve. Thus, alphas fail at measuring 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, persistence, low beta

JEL Classification: G20, G11, G23

Suggested Citation

Natter, Markus and Rohleder, Martin and Wilkens, Marco, Maturity-Matched Bond Fund Performance (March 21, 2019). 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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