Maturity-Matched Bond Fund Performance

44 Pages Posted: 2 Dec 2016 Last revised: 10 Jul 2019

See all articles by Markus Natter

Markus Natter

University of Augsburg

Martin Rohleder

University of Augsburg

Marco Wilkens

University of Augsburg

Date Written: July 8, 2019

Abstract

We uncover systematic “maturity-mismatch errors” in the usual linear bond fund performance measures. By using for all funds the same passive benchmark, usually a broad medium maturity bond index, 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. Previous findings like performance persistence are partly driven by this mechanical error. 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 (July 8, 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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