Benchmarking Australian Fixed Interest Fund Performance: Finding the Optimal Factors
34 Pages Posted: 17 Nov 2006
In this paper, we analyse the performance of Australian fixed interest managed funds and assess multiple benchmarks through which such performance can be reliably measured. We examine the effectiveness of seven indices of bond performance, as well as factors impacting on fixed interest asset values and, hence, returns, including interest rate fluctuations, economic fundamentals, maturity risk, default risk and cross-market influences. We test all combinations of factors in cross-section and time series to find the optimum benchmark. The results, consistent across time, show that a correct combination of a fund-based market variable, a mixture of interest rate factors and economic factors as well as a proxy for movements in the equity markets yield the optimal benchmark.
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