Measuring and predicting bond fund performance : an empirical study of the Norwegian market
Master thesis
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http://hdl.handle.net/11250/2452683Utgivelsesdato
2017Metadata
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- Master Thesis [4508]
Sammendrag
This paper concentrates on the performance of Norwegian bond funds by measuring
the risk-adjusted return (alphas) and examining the predictive power of several fund
characteristics. We use daily returns both gross and net of expenses on 18 actively
managed corporate funds between October 2006 to September 2016. In the first part, the
performance is measured by employing a single-index model and several multi-factor
models over the full ten-year period. We find that about 70% of bond funds have been able
to generate significant abnormal returns gross of expenses. After adjusting for expenses,
only about 30% of the funds generate significant out-performance. Moreover, there
is not a single fund exhibiting a significant negative performance. A non-constrained
multi-factor model that captures the term and default premium best describes the return
variation of these funds. In the second part, we test whether abnormal performance can
be predicted while accounting for relevant characteristics which can impact the future
performance. The analysis is conducted over twenty half-year periods using three multifactor
models. We find evidence that persistence in abnormal return during the current
half year period is a significant predictor of abnormal performance over the next half year
period. Our analysis reveals approximately a third of the risk-adjusted return over the
current period carries forward to the next period. There is an insignificant relationship
for all other factors. The result is found to be robust across all multi-factor models.