Pricing kernel measures of Canadian fund performance

The dissertation consists of four essays that address several issues related to the performance of Canadian equity and fixed-income mutual funds. In the first essay, a general asset pricing framework is used to derive a conditional asset pricing kernel that accounts efficiently for time variation in expected returns and risk, and is suitable to perform (un)conditional evaluations of passive and dynamic investment strategies. The abnormal unconditional performance of Canadian equity mutual funds over the period 1989-1999 becomes negative with conditioning. The performance statistics are weakly sensitive to changes in the level of relative risk aversion of the uninformed investor. The reversal in the size-based performance results with limited information conditioning is alleviated somewhat with an expansion of the conditioning set. Estimates of survivorship bias due to the elimination of funds with shorter lives, which range from 36 to 58 basis points per year, are stable across performance models but differ across groupings by fund objective. In the second essay, we examine the sensitivity of various measures of portfolio performance using various return-based linear benchmark models in both their unconditional and conditional versions for a sample of Canadian equity mutual funds. In a departure from the current literature, performance inferences are based on tests that incorporate the contemporaneous cross-correlations across fund returns. In the third essay, we use higher-order moment and nonlinear asset pricing kernel models to estimate the risk-adjusted performance of a sample of Canadian equity mutual funds. (Un)conditional frameworks are developed that are suitable to perform evaluations of fixed weight and dynamic strategies. The results show that the weak unconditional performance becomes positive and significant with nonlinear and conditional kernel-based benchmarks. In the fourth essay, we presents new evidence on the performance of Canadian fixed-income funds using various linear single- and multi-factor benchmark models based on a sample of Canadian fixed-income mutual funds over the period, 1985-2000. Frameworks are developed that are suitable to perform evaluations of fixed-weight and dynamic strategies. The results show evidence of negative performance, which improves with partial conditioning. The performance measures are weakly sensitive to the return generating process. Tests that do not incorporate the contemporaneous cross-correlations in the returns among individual funds consistently alter and reverse the conditioning information-based performance inferences and the large fund effect. (Abstract shortened by UMI.)