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Fixed-income fund performance: Role of luck and ability in tail membership

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  • Ayadi, Mohamed A.
  • Kryzanowski, Lawrence

Abstract

The risk-adjusted performance (alphas) of a comprehensive and survivorship-free sample of Canadian bond funds after (before) management-related costs is negative (positive) and is weakly sensitive to the choice of the return-generating process. A conditional multi-factor model that captures maturity differences and default risk best describes the return-generating process of these funds. Examination of funds in the tails of the performance distribution using the block-bootstrap method suggests that "bad luck" causes the before costs underperformance of extreme left-tail funds and no fund possesses truly superior management skills.

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  • Ayadi, Mohamed A. & Kryzanowski, Lawrence, 2011. "Fixed-income fund performance: Role of luck and ability in tail membership," Journal of Empirical Finance, Elsevier, vol. 18(3), pages 379-392, June.
    • Handle: RePEc:eee:empfin:v:18:y:2011:i:3:p:379-392
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    3. Petr Parshakov, 2014. "Russian Mutual Funds: Skill vs. Luck," HSE Working papers WP BRP 40/FE/2014, National Research University Higher School of Economics.
    4. Cuthbertson, Keith & Nitzsche, Dirk & O'Sullivan, Niall, 2022. "Mutual fund performance persistence: Factor models and portfolio size," International Review of Financial Analysis, Elsevier, vol. 81(C).
    5. Abbas Hejri, 2022. "On the recent developments of mutual funds with fixed‐income holdings: a systematic review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2313-2338, June.
    6. Ayadi, Mohamed A. & Chaibi, Anis & Kryzanowski, Lawrence, 2016. "Performance of Canadian hybrid mutual funds," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 124-147.
    7. Clare, Andrew & Cuthbertson, Keith & Nitzsche, Dirk & O'Sullivan, Niall, 2021. "How skilful are US fixed-income fund managers?," International Review of Financial Analysis, Elsevier, vol. 74(C).
    8. Parshakov, Petr, 2015. "Estimation of skill of Russian mutual fund managers," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 37(1), pages 57-66.
    9. Keith Cuthbertson & Simon Hayley & Dirk Nitzsche, 2016. "Market and Style Timing: German Equity and Bond Funds," European Financial Management, European Financial Management Association, vol. 22(4), pages 667-696, September.
    10. Otero-González, Luis & Leite, Paulo & Durán-Santomil, Pablo & Domingues, Renato, 2022. "Morningstar Star ratings and the performance, risk and flows of European bond mutual funds," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 479-496.
    11. Ayadi, Mohamed A. & Lazrak, Skander & Liao, Yusui & Welch, Robert, 2018. "Performance of fixed-income mutual funds with regime-switching models," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 217-231.
    12. Yi, Li & Liu, Zilan & He, Lei & Qin, Zilong & Gan, Shunli, 2018. "Do Chinese mutual funds time the market?," Pacific-Basin Finance Journal, Elsevier, vol. 47(C), pages 1-19.
    13. Campbell R. Harvey & Yan Liu, 2020. "False (and Missed) Discoveries in Financial Economics," Papers 2006.04269, arXiv.org.
    14. Ayadi, Mohamed A. & Kryzanowski, Lawrence & Mohebshahedin, Mahmood, 2018. "Impact of sponsorship on fixed-income fund performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 121-137.
    15. Jiang, George J. & Yuksel, H. Zafer, 2017. "What drives the “Smart-Money” effect? Evidence from investors’ money flow to mutual fund classes," Journal of Empirical Finance, Elsevier, vol. 40(C), pages 39-58.

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