Measuring the timing ability and performance of bond mutual funds
AbstractThis paper evaluates the ability of bond funds to "market time" nine common factors related to bond markets. Timing ability generates nonlinearity in fund returns as a function of common factors, but there are several non-timing-related sources of nonlinearity. Controlling for the non-timing-related nonlinearity is important. Funds' returns are more concave than benchmark returns, and this would appear as poor timing ability in naive models. With controls, the timing coefficients appear neutral to weakly positive. Adjusting for nonlinearity, the performance of many bond funds is significantly negative on an after-cost basis, but significantly positive on a before-cost basis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Economics.
Volume (Year): 98 (2010)
Issue (Month): 1 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505576
Mutual funds Market timing Bond funds Investment Performance Evaluation;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William Goetzmann & Jonathan Ingersoll & Zoran Ivkovich, 1998.
"Monthly Measurement of Daily Timers,"
Yale School of Management Working Papers
ysm88, Yale School of Management, revised 01 Oct 2000.
- Getmansky, Mila & Lo, Andrew W. & Makarov, Igor, 2004.
"An econometric model of serial correlation and illiquidity in hedge fund returns,"
Journal of Financial Economics,
Elsevier, vol. 74(3), pages 529-609, December.
- Getmansky, Mila & Lo, Andrew & Makarov, Igor, 2003. "An Econometric Model of Serial Correlation and Illiquidity In Hedge Fund Returns," Working papers 4288-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Mila Getmansky & Andrew W. Lo & Igor Makarov, 2003. "An Econometric Model of Serial Correlation and Illiquidity in Hedge Fund Returns," NBER Working Papers 9571, National Bureau of Economic Research, Inc.
- Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, vol. 54(4), pages 513-33, October.
- Ben S. Bernanke, 1983.
"Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression,"
NBER Working Papers
1054, National Bureau of Economic Research, Inc.
- Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
- Jonathan Ingersoll & Ivo Welch, 2007.
"Portfolio Performance Manipulation and Manipulation-proof Performance Measures,"
Review of Financial Studies,
Society for Financial Studies, vol. 20(5), pages 1503-1546, 2007 17.
- William Goetzmann & Jonathan Ingersoll & Matthew Spiegel & Ivo Welch, 2002. "Portfolio Performance Manipulation and Manipulation-Proof Performance Measures," Yale School of Management Working Papers amz2471, Yale School of Management, revised 01 Apr 2006.
- Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1995. " Fundamental Economic Variables, Expected Returns, and Bond Fund Performance," Journal of Finance, American Finance Association, vol. 50(4), pages 1229-56, September.
- Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, 05.
- Admati, Anat R, et al, 1986. " On Timing and Selectivity," Journal of Finance, American Finance Association, vol. 41(3), pages 715-30, July.
- Fung, William & Hsieh, David A, 2001. "The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 313-41.
- Edwin J. Elton, 2001. "A First Look at the Accuracy of the CRSP Mutual Fund Database and a Comparison of the CRSP and Morningstar Mutual Fund Databases," Journal of Finance, American Finance Association, vol. 56(6), pages 2415-2430, December.
- Jagannathan, Ravi & Korajczyk, Robert A, 1986. "Assessing the Market Timing Performance of Managed Portfolios," The Journal of Business, University of Chicago Press, vol. 59(2), pages 217-35, April.
- Becker, Connie & Ferson, Wayne & Myers, David H. & Schill, Michael J., 1999. "Conditional market timing with benchmark investors," Journal of Financial Economics, Elsevier, vol. 52(1), pages 119-148, April.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
- Wayne E. Ferson & Sergei Sarkissian & Timothy T. Simin, 2003.
"Spurious Regressions in Financial Economics?,"
Journal of Finance,
American Finance Association, vol. 58(4), pages 1393-1414, 08.
- Richard B. Evans, 2010. "Mutual Fund Incubation," Journal of Finance, American Finance Association, vol. 65(4), pages 1581-1611, 08.
- Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-61, June.
- Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
- Pierluigi Balduzzi & Cesare Robotti, 2005.
"Mimicking portfolios, economic risk premia, and tests of multi-beta models,"
2005-04, Federal Reserve Bank of Atlanta.
- Balduzzi, Pierluigi & Robotti, Cesare, 2008. "Mimicking Portfolios, Economic Risk Premia, and Tests of Multi-Beta Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 354-368.
- Rubinstein, Mark E, 1973. "A Comparative Statics Analysis of Risk Premiums," The Journal of Business, University of Chicago Press, vol. 46(4), pages 605-15, October.
- Jiang, George J. & Yao, Tong & Yu, Tong, 2007. "Do mutual funds time the market? Evidence from portfolio holdings," Journal of Financial Economics, Elsevier, vol. 86(3), pages 724-758, December.
- Boney, Vaneesha & Comer, George & Kelly, Lynne, 2009. "Timing the investment grade securities market: Evidence from high quality bond funds," Journal of Empirical Finance, Elsevier, vol. 16(1), pages 55-69, January.
- Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
- Michael W. Brandt & Kenneth A. Kavajecz, 2004. "Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve," Journal of Finance, American Finance Association, vol. 59(6), pages 2623-2654, December.
- William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
- Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
- Grinblatt, Mark & Titman, Sheridan D, 1989.
"Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings,"
The Journal of Business,
University of Chicago Press, vol. 62(3), pages 393-416, July.
- Mark Grinblatt & Sheridan Titman, . "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," Rodney L. White Center for Financial Research Working Papers 23-88, Wharton School Rodney L. White Center for Financial Research.
- Bessembinder, Hendrik & Maxwell, William & Venkataraman, Kumar, 2006. "Market transparency, liquidity externalities, and institutional trading costs in corporate bonds," Journal of Financial Economics, Elsevier, vol. 82(2), pages 251-288, November.
- Blake, Christopher R & Elton, Edwin J & Gruber, Martin J, 1993. "The Performance of Bond Mutual Funds," The Journal of Business, University of Chicago Press, vol. 66(3), pages 370-403, July.
- Wayne Ferson & Kenneth Khang, 2002. "Conditional Performance Measurement Using Portfolio Weights: Evidence for Pension Funds," NBER Working Papers 8790, National Bureau of Economic Research, Inc.
- Fang, Jieyan & Kempf, Alexander & Trapp, Monika, 2014. "Fund Manager Allocation," Journal of Financial Economics, Elsevier, vol. 111(3), pages 661-674.
- Herrmann, Ulf & Scholz, Hendrik, 2013. "Short-term persistence in hybrid mutual fund performance: The role of style-shifting abilities," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2314-2328.
- Joe-Ming Lee, 2013. "The Search of Structural Changes in Mutual Fund Industry-Based On the ARMAX-GJR-GARCH Model," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(3), pages 308-316, March.
- Cao, Charles & Chen, Yong & Liang, Bing & Lo, Andrew W., 2013. "Can hedge funds time market liquidity?," Journal of Financial Economics, Elsevier, vol. 109(2), pages 493-516.
- Boguth, Oliver & Carlson, Murray & Fisher, Adlai & Simutin, Mikhail, 2011. "Conditional risk and performance evaluation: Volatility timing, overconditioning, and new estimates of momentum alphas," Journal of Financial Economics, Elsevier, vol. 102(2), pages 363-389.
- Roberto Violi, 2011. "Optimal active portolio management and relative performance drivers: theory and evidence," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 187-209 Bank for International Settlements.
- Cici, Gjergji & Gibson, Scott, 2010. "The performance of corporate-bond mutual funds: Evidence based on security-level holdings," CFR Working Papers 10-18, University of Cologne, Centre for Financial Research (CFR).
- Hammami, Yacine & Jilani, Faouzi & Oueslati, Abdelmonem, 2013. "Mutual fund performance in Tunisia: A multivariate GARCH approach," Research in International Business and Finance, Elsevier, vol. 29(C), pages 35-51.
- Ayadi, Mohamed A. & Kryzanowski, Lawrence, 2011. "Fixed-income fund performance: Role of luck and ability in tail membership," Journal of Empirical Finance, Elsevier, vol. 18(3), pages 379-392, June.
- Chris GROSE & Theodoros KARGIDIS, 2012. "Persistence In Performance For Mutual Funds In Periods Of Crisis," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 11(1), pages 85-98.
- Fang, Jieyan & Kempf, Alexander & Trapp, Monika, 2012. "Fund manager allocation," CFR Working Papers 10-04 [rev.], University of Cologne, Centre for Financial Research (CFR).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.