On Benchmarks and the Performance of DEM Bond Mutual Funds

Abstract

This article analyzes the performance of 40 deutschemark bond mutual funds between 1988 and 1996. Performance is measured by estimating unrestricted single and multi-index models as well as an asset class factor model that takes investment restrictions into account. Many funds exhibit statistically significant negative performance with respect to reasonable benchmarks. This result is robust across different models and index specifications. The out-of-sample results of a dynamic asset class factor model are surprisingly similar to the most simple single-index in-sample models. There is a negative (although not statistically significant) relationship between performance and expense ratios, but there is no clear evidence for or against performance persistence.