RISK-ADJUSTED PERFORMANCE OF SWEDISH BOND FUNDS IN THE YEARS 2000-2003; AN APPLICATION OF THE MODIGLIANI-MEASURE

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Abstract

This paper compare Swedish long-term bond funds’ returns against the OMRX-TBond, which is the major index of long-term bonds issued by the Swedish National Debt Office and other major Swedish bond issuers. The evaluation is made on a total return level as well as on a risk-adjusted basis. To measure risk-adjusted performance a performance measure developed by Modigliani and Modigliani (1997) is used. The main advantage with the Modigliani-measure is that it measures performance in basis points like the original return of any asset. By using the Modigliani-measure the study illustrates the importance of risk-adjustment when comparisons are made between benchmarks, such as an index, and mutual funds or portfolios investing in that particular market. When risk-adjusted, the performance of many of the Swedish mutual funds improved noticeably, most of them however, still underperform the index OMRX-TBond by a few percentage points when risk-adjusted with the M2-model. This result gives support to the idea originally presented by Sharpe (1966) and Jensen (1968), that the majority of mutual funds significantly underperform the market.

Keywords: Mutual funds, Bonds, Portfolio performance, Performance measures

How to cite this paper: Wiberg, D. (2006). Risk-adjusted performance of Swedish bond funds in the years 2000-2003; An application of the Modigliani-measure. Corporate Ownership & Control, 4(1-2), 284-292. https://doi.org/10.22495/cocv4i1c2p4