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Performance of fixed-income mutual funds with regime-switching models

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  • Ayadi, Mohamed A.
  • Lazrak, Skander
  • Liao, Yusui
  • Welch, Robert

Abstract

We use Markovian regime-switching models to assess the performance of Canadian fixed-income mutual funds from 1980 to 2011. Fund returns are well described by two distinct volatility related bull and bear regimes. While the selection performance of Canadian fixed-income funds is negative, it is regime dependent and deteriorates during recessions. We also find mixed results on the timing ability of fund managers with poor performance for Canadian inflation protected fixed-income funds, Canadian long-term fixed-income funds, and Canadian money market funds groups. Finally, we show that a multivariate regime-switching model is superior to univariate models given the dynamic market conditions and the fund portfolios’ cross-correlations.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:quaeco:v:69:y:2018:i:c:p:217-231
    DOI: 10.1016/j.qref.2018.03.005
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    More about this item

    Keywords

    Performance evaluation; Markovian regime-switching models; Selection and timing abilities; Fixed-income mutual funds;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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