What drives the performance of convertible-bond funds?

Manuel Ammann, Axel Kind and Ralf Seiz

Journal of Banking & Finance, 2010, vol. 34, issue 11, 2600-2613

Abstract: This paper examines the performance of US mutual funds that invest primarily in convertible bonds. Multivariate cross-sectional analyses show a significant relation between a fund's performance and its asset composition: the higher the difference in the percentage of assets invested in convertible bonds compared to the percentage invested in stocks, the higher the performance, on average. We show that this result can be explained by factors associated with investment opportunities in the convertible-bond market and trading strategies related to convertible arbitrage, as typically performed by hedge funds. Overall, convertible-bond fund performance measured by alpha is comparable to a passive investment in stocks, bonds, and convertible bonds. This performance is the result of weak selection skills and successful timing strategies related to convertible arbitrage.

Keywords: Mutual; funds; Performance; Hybrid; securities; Convertible; bonds (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:34:y:2010:i:11:p:2600-2613

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