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Measuring the Timing Ability and Performance of Bond Mutual Funds

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  • Yong Chen
  • Wayne Ferson
  • Helen Peters

Abstract

This 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15318.

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Date of creation: Sep 2009
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Publication status: published as "Measuring the Timing Ability and Performance of Bond Mutual Funds," with Yong Chen and Helen Peters, 2010, Journal of Financial Economics 98(1), 72-89.
Handle: RePEc:nbr:nberwo:15318

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Cited by:
  1. 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).

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