Evaluating Government Bond Fund Performance with Stochastic Discount Factors

Posted: 29 Feb 2008

See all articles by Wayne E. Ferson

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

r R. Henry

affiliation not provided to SSRN

n J. Kisgen

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: 2006

Abstract

This article shows how to evaluate the performance of managed portfolios using stochastic discount factors (SDFs) from continuous-time term structure models. These models imply empirical factors that include time averages of the underlying state variables. The approach addresses a performance measurement bias, described by Goetzmann, Ingersoll, and Ivkovic (2000) and Ferson and Khang (2002), arising because fund managers may trade within the return measurement interval or hold positions in replicable options. The empirical factors contribute explanatory power in factor model regressions and reduce model pricing errors. We illustrate the approach on US government bond funds during 1986-2000.

Suggested Citation

Ferson, Wayne E. and Henry, r R. and Kisgen, n J., Evaluating Government Bond Fund Performance with Stochastic Discount Factors ( 2006). The Review of Financial Studies, Vol. 19, Issue 2, pp. 423-455, 2006. Available at SSRN: https://ssrn.com/abstract=900720 or http://dx.doi.org/10.1093/rfs/hhj015

Wayne E. Ferson (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

R R. Henry

affiliation not provided to SSRN

No Address Available

N J. Kisgen

affiliation not provided to SSRN

No Address Available

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