Controlling for Fixed Income Exposure in Portfolio Evaluation: Evidence from Hybrid Mutual Funds
33 Pages Posted: 7 May 2006
Date Written: April 27, 2006
We examine whether controlling for funds' fixed income exposure affects the conclusions drawn in performance evaluation when a fund sample holds a significant amount of fixed income securities. We use daily return data to measure the performance of hybrid funds. Compared to the Carhart (1997) four factor model, we find that extended forms of the model which include various bond indices provide significantly different conclusions concerning the abnormal performance of the funds relative to the original model. Specifically, within one of our fund samples, abnormal return estimates change from positive to significantly negative. Overall, the results of our study motivate the use of bond indices in performance evaluation when portfolio data indicate that the sample of funds holds a substantial amount of fixed income securities.
Keywords: performance evaluation, fixed income securities, hybrid funds
JEL Classification: G20, G23, G11
Suggested Citation: Suggested Citation