Portfolio performance sensitivity for various asset-pricing kernels

Ayadi, Mohamed; Kryzanowski, Lawrence

doi:10.1016/j.cor.2006.02.019

Cited by 11 publications

(3 citation statements)

References 37 publications

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“…As Whitelaw (1994Whitelaw ( , 1997 underlines, we can intuitively conclude that a substantial part of the variation of the conditional Sharpe ratio is attributable to variation in this conditional correlation. On the same lines as Whitelaw, goes the empirical evidence of Ayadi and Krysanovsky (2008) that the use of pricing kernel methodology can easily encompass time-varying measures of performance. Both the postulate of Whitelaw and the empirical evidence of Ayadi and Krysanovsky show the importance of calculating time-varying Sharpe ratios as they provide an indirect way of obtaining information regarding the conditional correlation between the return of a market portfolio and the stochastic discount function (or, in a similar way, on the conditional correlation between the return of a market portfolio and the variables affecting the stochastic discount function).…”

Section: The Econometric Methods Used and The Theoretical Background Fmentioning

confidence: 95%

The performance of the European stock markets: a time-varying Sharpe ratio approach

Fonseca

2010

The European Journal of Finance

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This article studies the performance of the national stock markets of 16 European countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Holland, Ireland, Italy, Norway, Portugal, Spain, Sweden, Switzerland and the UK), using daily data covering the period between 2 January 2001 and 30 May 2009. Daily expected returns, and the conditional volatility of each index, were calculated using a model combining the market model and an implicit long-term relation between the index prices. Finally, time-varying (conditional) Sharpe ratios were calculated for each index. These were used as the basis for a statistical comparison of the performance of the stock indexes of this group of countries, throughout different sub-periods corresponding to different conditions (of expansion and depression) in the stock markets.expected return, Sharpe ratio, market model, conditional volatility,

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Section: The Econometric Methods Used and The Theoretical Background Fmentioning

confidence: 95%

The performance of the European stock markets: a time-varying Sharpe ratio approach

Fonseca

2010

The European Journal of Finance

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“…This performance measure is equivalent to a Sharpe ratio Adcock (2007), who proved that the Sharpe ratio can be considered as a market price of risk, the same significance can be assigned to this performance measure associated with duration. Equilibrium bond pricing models belong to the larger family of pricing kernel methodology which, as Ayadi and Krysanovsky (2008) show, can encompass time-varying measures of performance like that presented in (39). As Ayadi and Kryzanowski (2011) pointed out, the fact that bond indexes have stationary maturities enables us to avoid one of the problems of measuring the performance of bond funds, i.e.…”

Section: Empirical Analysis Of the Influence Of Convexity On Bond Pormentioning

confidence: 99%

Stochastic durations, the convexity effect, and the impact of interest rate changes

Fonseca¹

2013

The European Journal of Finance

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This article shows that the equilibrium models of bond pricing do not preclude arbitrage opportunities caused by convexity. Consequently, stochastic durations derived from these models are limited in their ability to act as interest rate risk measures. The research of the present article makes use of an intertemporal utility maximization framework to determine the conditions under which duration is an adequate interest rate risk measure. Additionally, we show that zero coupon bonds satisfy those equilibrium conditions, whereas coupon bonds or bond portfolios do not as a result of the convexity effect. The results are supported by empirical evidence, which confirms the influence of convexity on the deviation of coupon bond returns from equilibrium.

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“…As discussed above, our benchmark models capture the variations in both the stock and bond components of the portfolios of the hybrid funds. Two instrumental variables are used to estimate conditional performance: the lagged one-month Treasury bill yield and the lagged dividend yield, as proposed in Ayadi and Kryzanowski (2005, 2008) for the Canadian market. The highly persistent instruments are stochastically detrended by subtracting their two-month moving average, as suggested by Campbell (1991) and Ferson et al .…”

Section: Samples Data and Variablesmentioning

confidence: 99%

Robust market timing tests of Canadian hybrid mutual funds

Ayadi

Chaibi

Kryzanowski

2022

IJMF

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PurposePrior research has documented inconclusive and/or mixed empirical evidence on the timing performance of hybrid funds. Their performance inferences generally do not efficiently control for fixed-income exposure, conditioning information, and cross-correlations in fund returns. This study examines the stock and bond timing performances of hybrid funds while controlling and accounting for these important issues. It also discusses the inferential implications of using alternative bootstrap resampling approaches.Design/methodology/approachWe examine the stock and bond timing performances of hybrid funds using (un)conditional multi-factor benchmark models with robust estimation inferences. We also rely on the block bootstrap method to account for cross-correlations in fund returns and to separate the effects of luck or sampling variation from manager skill.FindingsWe find that the timing performance of portfolios of funds is neutral and sensitive to controlling for fixed-income exposures and choice of the timing measurement model. The block-bootstrap analyses of funds in the tails of the distributions of stock timing performances suggest that sampling variation explains the underperformance of extreme left tail funds and confirms the good and bad luck in the bond timing management of tail funds. We report inference changes based on whether the Kosowski et al. or the Fama and French bootstrap approach is used.Originality/valueThis study provides extensive and robust evidence on the stock and bond timing performances of hybrid funds and their sensitivity based on (un)conditional linear multi-factor benchmark models. It examines the timing performances in the extreme tails funds using the block bootstrap method to efficiently identify (un)skilled fund managers. It also highlights the sensitivity of inferences to the choice of testing methodology.

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Portfolio performance sensitivity for various asset-pricing kernels

Cited by 11 publications

References 37 publications

The performance of the European stock markets: a time-varying Sharpe ratio approach

The performance of the European stock markets: a time-varying Sharpe ratio approach

Stochastic durations, the convexity effect, and the impact of interest rate changes

Robust market timing tests of Canadian hybrid mutual funds

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