Author(s): Leite, Paulo ; Armada, Manuel Rocha
Date: 2016
Persistent ID: http://hdl.handle.net/11110/1109
Origin: CiencIPCA
Subject(s): Bond funds; Business cycles
Author(s): Leite, Paulo ; Armada, Manuel Rocha
Date: 2016
Persistent ID: http://hdl.handle.net/11110/1109
Origin: CiencIPCA
Subject(s): Bond funds; Business cycles
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 subperiod. 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.