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Bond Fund Performance During Recessions and Expansions: Empirical Evidence from a Small Market
Author(s) -
Leite Paulo,
Armada Manuel Rocha
Publication year - 2017
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12098
Subject(s) - bond , recession , bond market , economics , business cycle , monetary economics , financial crisis , equity (law) , closed end fund , bond market index , financial system , financial economics , finance , macroeconomics , political science , law , market liquidity
This paper provides the first investigation about bond mutual fund performance during recession and expansion periods separately. Based on multi‐factor performance evaluation models, results show that bond funds significantly underperform the market during both phases of the business cycle. Nevertheless, unlike equity funds, bond funds exhibit considerably higher alphas during good economic states than during market downturns. These results, however, seem entirely driven by the global financial crisis sub‐period. In contrast, during the recession associated to the Euro sovereign debt crisis, bond funds are able to accomplish neutral performance. This improved performance throughout the debt crisis seems to be related to more conservative investment strategies, which reflect an increase in managers' risk aversion.