Performance persistence of closed-end funds

Performance persistence of closed-end funds Studies of performance persistence of closed-end funds (CEFs) use two measures of persistence; autocorrelation and rank correlation of performance. The autocorrelation measure offers limited information because it cannot separate persistence relative to the market and to the industry. The rank correlation measure is generally applied to two periods, disregarding multi-period persistence. We investigate performance persistence of CEFs in terms of both market price return and net asset value return using contingency tables and multiple regression models. Jensen’s alpha and the Sharpe ratio are used as measures of risk-adjusted performance. We test three hypotheses: (i) CEFs performing better than the industry median will do so persistently, (ii) CEFs outperform the market persistently; and (iii) performance persistence can be partly explained by dividend yield. The findings are fivefold. First, the number of persistent years varies with the models used to calculate risk-adjusted performance. Second, with 4-index unconditional beta fixed variance model, CEFs persistently beat their industry for six out of 10 years in terms of both market price return and net asset value return. Third, with a 4-index unconditional beta fixed variance model, we find performance persistence relative to market for 6 and 7 years, out of the 10 years considered, in terms of market price return and net asset value return, respectively. Fourth, the disaggregate sample tests show that performance of municipal bond funds is more persistent than equity funds and taxable bond funds. Fifth, dividend patterns can partially explain persistence with liquidity as control. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Performance persistence of closed-end funds

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Publisher
Springer Journals
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0209-9
Publisher site
See Article on Publisher Site

Abstract

Studies of performance persistence of closed-end funds (CEFs) use two measures of persistence; autocorrelation and rank correlation of performance. The autocorrelation measure offers limited information because it cannot separate persistence relative to the market and to the industry. The rank correlation measure is generally applied to two periods, disregarding multi-period persistence. We investigate performance persistence of CEFs in terms of both market price return and net asset value return using contingency tables and multiple regression models. Jensen’s alpha and the Sharpe ratio are used as measures of risk-adjusted performance. We test three hypotheses: (i) CEFs performing better than the industry median will do so persistently, (ii) CEFs outperform the market persistently; and (iii) performance persistence can be partly explained by dividend yield. The findings are fivefold. First, the number of persistent years varies with the models used to calculate risk-adjusted performance. Second, with 4-index unconditional beta fixed variance model, CEFs persistently beat their industry for six out of 10 years in terms of both market price return and net asset value return. Third, with a 4-index unconditional beta fixed variance model, we find performance persistence relative to market for 6 and 7 years, out of the 10 years considered, in terms of market price return and net asset value return, respectively. Fourth, the disaggregate sample tests show that performance of municipal bond funds is more persistent than equity funds and taxable bond funds. Fifth, dividend patterns can partially explain persistence with liquidity as control.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Sep 24, 2010

References

  • The effect of beta, bid-ask spread, residual risk and size on stock return
    Amihud, Y; Mendelson, H

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