Pitfalls and perils of financial innovation: The use of CDS by corporate bond funds

We use the financial crisis of 2007–2009 as a laboratory to examine the costs and benefits of teams versus single managers in asset management. We find that when a fund uses complex trading strategies involving the use of CDS team-managed funds outperform solo-managed funds. This may be due to the g...

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Bibliographic Details
Published inJournal of banking & finance Vol. 55; pp. 204 - 214
Main Authors Adam, Tim, Guettler, Andre
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.06.2015
Elsevier Sequoia S.A
Subjects
Asset management
Assets
Corporate bonds
Cost benefit analysis
Credit default swaps
Economic crisis
Financial crisis
Innovation
Laboratory
Management
Management teams
Market timing
Mutual funds
Securities trading
Studies
Market timing
G11
Mutual funds
Management teams
G23
G15
Performance
Credit default swaps
Financial crisis
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Summary:We use the financial crisis of 2007–2009 as a laboratory to examine the costs and benefits of teams versus single managers in asset management. We find that when a fund uses complex trading strategies involving the use of CDS team-managed funds outperform solo-managed funds. This may be due to the greater diversity of expertise, experience and skill of teams relative to single managers. During the financial crisis, however, the performance premium of teams becomes negative, which may be because of the slower decision times of teams, which are especially costly during times of rapidly changing market conditions.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 23
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2015.02.019