An Asymptotic Principal Components Performance Measurement for Mutual Funds With Emphasis on Fixed Income Funds Relative to Balanced and Stock Funds
Frohlich-Plummer, Cheryl Jean
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https://hdl.handle.net/2142/71526
Description
Title
An Asymptotic Principal Components Performance Measurement for Mutual Funds With Emphasis on Fixed Income Funds Relative to Balanced and Stock Funds
Author(s)
Frohlich-Plummer, Cheryl Jean
Issue Date
1988
Doctoral Committee Chair(s)
Scott, Louis O.,
Department of Study
Finance
Discipline
Finance
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, General
Economics, Finance
Abstract
This study attempts first to analyze the performance of bond, balanced, and stock mutual funds relative to the market and each other. It builds a performance measurement model based upon the Connor-Korajczyk Jensen-like measure. This model enables one to avoid some of the problems associated with factor analysis and yet look at performance in an APT multifactor setting.
The empirical results found that all funds were on the average unable to outperform the market. The evidence tends to indicate that fund managers were unable to consistently perform well enough to recover their research expenses, management fees, and commission expenses which further validates previous work. However, it should be noted that on the average the results indicated that the bond funds performed better than either the balanced or stock funds. It should also be noted that excess returns were evaluated net of any expenses. If expenses were returned to the funds this particular result may not hold.
Using the "goodness of fit" test, their results tended to indicate that the Connor-Korajczyk Jensen-like performance measure works well for stock and special funds but do not work nearly as well for bond funds. It would, therefore, be safe to speculate that either the factors derived under the asymptotic component analysis technique do not capture the market forces relating to bonds adequately (a benchmark error) or the model for performance measure is not adequately specified.
Secondly, this study using simple economic arguments attempts to identify a set of economic state variables as sources of systematic asset risk. The time series f factors derived from the asymptotic component analysis were regressed on the state variables. A state variable was considered related to a factor if their correlation coefficient exceeded.2 (at least two standard errors from zero). This study found that changes in the Value Weighted New York Index and changes in the Dow Jones Index to be the most significant. Several other variables were found to be only somewhat significant.
As this study seems to indicate further research into the performance differences between types of funds is needed.
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