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What drives the performance of convertible-bond funds?

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Author Info

  • Ammann, Manuel
  • Kind, Axel
  • Seiz, Ralf

Abstract

This paper examines the performance of US mutual funds that invest primarily in convertible bonds. Multivariate cross-sectional analyses show a significant relation between a fund's performance and its asset composition: the higher the difference in the percentage of assets invested in convertible bonds compared to the percentage invested in stocks, the higher the performance, on average. We show that this result can be explained by factors associated with investment opportunities in the convertible-bond market and trading strategies related to convertible arbitrage, as typically performed by hedge funds. Overall, convertible-bond fund performance measured by alpha is comparable to a passive investment in stocks, bonds, and convertible bonds. This performance is the result of weak selection skills and successful timing strategies related to convertible arbitrage.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 11 (November)
Pages: 2600-2613

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:11:p:2600-2613

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Mutual funds Performance Hybrid securities Convertible bonds;

References

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Citations

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Cited by:
  1. Dutordoir, Marie & Lewis, Craig & Seward, James & Veld, Chris, 2014. "What we do and do not know about convertible bond financing," Journal of Corporate Finance, Elsevier, vol. 24(C), pages 3-20.
  2. Herrmann, Ulf & Scholz, Hendrik, 2013. "Short-term persistence in hybrid mutual fund performance: The role of style-shifting abilities," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2314-2328.
  3. Badrinath, S.G. & Gubellini, S., 2011. "On the characteristics and performance of long-short, market-neutral and bear mutual funds," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1762-1776, July.
  4. Chen, Honghui & Nguyen, Hoang Huy & Singal, Vijay, 2011. "The information content of stock splits," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2454-2467, September.

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