Robust performance measures for high yield bond funds

• Published in: The Quarterly review of economics and finance Vol. 50; no. 3; pp. 332 - 340
• Main Authors: Lipton, Amy F., Kish, Richard J.
• Format: Journal Article
• Language: English
• Published: Greenwich Elsevier Inc 01-08-2010; Elsevier; Elsevier Science Ltd
• Series: The Quarterly Review of Economics and Finance
• Subjects: Abnormal returns; Bonds; Correlation analysis; High yield bonds; High yield investments; Mutual fund performance; Mutual fund performance High yield bonds; Mutual funds; Ratios; Studies; High yield bonds; G23; Mutual fund performance
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2010.03.001

We examine performance measures for high yield bond mutual funds, which are a considerable percentage of taxable bond investments, but have not been widely studied. High yield funds exhibit persistence in their monthly returns, so we calculate Sharpe ratios using methods that incorporate the serial correlation of returns. We find that high yield fund rankings using raw returns and conventionally calculated Sharpe ratios are different from those using trailing standard deviations and robust standard errors. High yield fund rankings based on robust Sharpe ratios also differ from those computed using multi-index Jensen's alphas and information ratios. When measured by risk-adjusted returns, high yield bond fund managers do not add much value.