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The role of active management and asset allocation policy on government and corporate bond fund returns

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  • Ofer Arbaa
  • Eva Varon

Abstract

The role of asset allocation policy and active management on equity mutual fund returns has been a popular research topic, while there is almost no literature on the subject covering bond funds. We check sources of performance for Israeli corporate and government bond funds, which together account for above 70% of the Israeli mutual fund market, using a unique monthly database of approximately 10-years. Our results reveal that active management is far more important than policy for corporate bond fund returns, which is mainly attributable to managers' security selection skills. The reverse is true for government bond funds and strategic long term policies account for a larger part of excess market return variability. Furthermore, if we take into account management fees, government bond funds lose from active management. The greater heterogeneity of investments open to corporate bond funds is a possible explanation for the difference in results.

Suggested Citation

  • Ofer Arbaa & Eva Varon, 2018. "The role of active management and asset allocation policy on government and corporate bond fund returns," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 18(3), pages 167-175, September.
    • Handle: RePEc:bor:bistre:v:18:y:2018:i:3:p:167175
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    Cited by:

    1. Kuo-Jui Wu & Qing Chen & Yun Qi & Xiaoyue Jiang & Shuo Gao & Ming-Lang Tseng, 2019. "Sustainable Development Performance for Small and Medium Enterprises Using a Fuzzy Synthetic Method-DEMATEL," Sustainability, MDPI, vol. 11(15), pages 1-25, July.

    More about this item

    Keywords

    Active management; Bond funds; Corporate bonds; Policy; Security selection; Timing;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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