Conditioning Information and European Bond Fund Performance

34 Pages Posted: 5 Mar 2002

See all articles by Florinda Silva

Florinda Silva

University of Minho - School of Economics and Management

Maria C. Cortez

University of Minho - School of Economics and Management

Date Written: January 2002

Abstract

In this paper we investigate the performance of European bond funds which, as far as we are aware of, have not yet been studied. Both unconditional and conditional models are used to evaluate fund performance. As conditioning information we use variables that we find to be useful in predicting bond market returns in the European Market. We also test the sensitivity of bond fund performance to single and multiple benchmarks. The results show that, in general, bond funds are not able to outperform passive strategies. The negative performance is more evident for bond funds in Italy, Spain, Portugal and also for UK "Gilt" funds. For most German funds and UK "Corporate" and "Other Bond" funds and also for several French funds we cannot reject the hypothesis of neutral performance. These findings are robust to whatever model (unconditional versus conditional and single versus multi-index) we use. In general, the multi-index model seems to add some explanatory power in relation to the single-index model. Furthermore, when we incorporate the predetermined information variables, we can observe a slight tendency towards better performance, in particular for the multi-index model. This evidence is consistent with previous studies on stock funds and comes in support of the argument that conditional models might allow for a better assessment of performance. However, our results suggest that the impact of additional risk factors seems to be greater than the impact of incorporating predetermined information variables.

JEL Classification: G11

Suggested Citation

Silva, Florinda and Ceu Cortez, Maria, Conditioning Information and European Bond Fund Performance (January 2002). EFMA 2002 London Meetings; EFA 2002 Berlin Meetings Discussion Paper. Available at SSRN: https://ssrn.com/abstract=300539 or http://dx.doi.org/10.2139/ssrn.300539

Florinda Silva

University of Minho - School of Economics and Management ( email )

Campus Gualtar
Braga, 4710-057
Portugal
351 253 604564 (Phone)
351 253 601380 (Fax)

Maria Ceu Cortez (Contact Author)

University of Minho - School of Economics and Management ( email )

Campus Gualtar
Braga, 4710-057
Portugal

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