The Persistence of European Bond Fund Performance: Does Conditioning Information Matter?

Abstract

In this paper we investigate if past performance can be used to predict future performance in the European bond fund market. Both unconditional and conditional measures of performance are considered. To our knowledge, this is the first study, which directly analyses the impact of conditioning information in assessing the persistence phenomenon in relation to bond funds.

We find empirical evidence that indicates consistency of European bond performance. This evidence is particularly strong for the case of Spanish bond funds. Some evidence of persistence is also found for French and German bond funds. Additionally, it seems that the persistence is concentrated mainly in the poor performing funds. The results were similar whatever methodology, cross-sectional regression analysis or contingency tables, is used for assessing performance persistence. Our findings indicate that the evidence of performance persistence decreases when we consider conditional alphas, particularly for the multi-index model, which suggests that some of the persistence phenomenon is driven by time-varying betas.

Keywords: Performance persistence, Performance evaluation, Conditional models, Bond funds

JEL Classification: G11, G12, G14