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Controlling for Fixed-Income Exposure in Portfolio Evaluation: Evidence from Hybrid Mutual Funds

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  • George Comer
  • Norris Larrymore
  • Javier Rodriguez

Abstract

We examine whether explicitly controlling for the fixed-income exposure of mutual funds affects conclusions drawn in performance assessment. We focus on daily return data from two hybrid mutual fund samples. Comparing abnormal performance estimates from the Carhart (1997) model to extensions designed to correct for bond holdings, we find that the estimates within one of our samples change from positive to significantly negative. Additional evidence indicates that cash flows to the funds are more closely correlated with the traditional Carhart measure, clearly indicating that the absence of bond indices misleads investors who use a fund's risk-adjusted performance as the basis for investment decisions. The Author 2007. Published by Oxford University Press on behalf of the Society for Financial Studies. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • George Comer & Norris Larrymore & Javier Rodriguez, 2009. "Controlling for Fixed-Income Exposure in Portfolio Evaluation: Evidence from Hybrid Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 481-507, February.
    • Handle: RePEc:oup:rfinst:v:22:y:2009:i:2:p:481-507
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    File URL: http://hdl.handle.net/10.1093/rfs/hhm087
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    Cited by:

    1. Yee Loon, 2011. "Model uncertainty, performance persistence and flows," Review of Quantitative Finance and Accounting, Springer, vol. 36(2), pages 153-205, February.
    2. 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.
    3. George Comer & Javier Rodriguez, 2013. "A comparison of corporate versus government bond funds," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(4), pages 495-510, October.
    4. Massimiliano Caporin & Grégory M. Jannin & Francesco Lisi & Bertrand B. Maillet, 2014. "A Survey On The Four Families Of Performance Measures," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 917-942, December.
    5. Edwin J. Elton & Martin J. Gruber & Andre de Souza, 2016. "Target Risk Funds," European Financial Management, European Financial Management Association, vol. 22(4), pages 519-539, September.
    6. Białkowski, Jędrzej & Bohl, Martin T. & Kaufmann, Philipp & Wisniewski, Tomasz P., 2013. "Do mutual fund managers exploit the Ramadan anomaly? Evidence from Turkey," Emerging Markets Review, Elsevier, vol. 15(C), pages 211-232.
    7. Herrmann, Ulf & Rohleder, Martin & Scholz, Hendrik, 2016. "Does style-shifting activity predict performance? Evidence from equity mutual funds," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 112-130.
    8. Sebastian Bunnenberg & Martin Rohleder & Hendrik Scholz & Marco Wilkens, 2019. "Jensen's alpha and the market‐timing puzzle," Review of Financial Economics, John Wiley & Sons, vol. 37(2), pages 234-255, April.
    9. George O. Aragon & Ji-Woong Chung & Byoung Uk Kang, 2023. "Do Prime Brokers Matter in the Search for Informed Hedge Fund Managers?," Management Science, INFORMS, vol. 69(8), pages 4932-4952, August.
    10. Bernhard Breloer & Hannah Lea Hühn & Hendrik Scholz, 2016. "Jensen alpha and market climate," Journal of Asset Management, Palgrave Macmillan, vol. 17(3), pages 195-214, May.
    11. 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.
    12. Katarzyna Perez & £ukasz Szymczyk, 2022. "Actual rate of the management fee in mutual funds of different styles," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(4), pages 969-1014, December.
    13. 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.
    14. Breloer, Bernhard & Scholz, Hendrik & Wilkens, Marco, 2014. "Performance of international and global equity mutual funds: Do country momentum and sector momentum matter?," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 58-77.

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