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The performance of corporate-bond mutual funds: Evidence based on security-level holdings

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  • Cici, Gjergji
  • Gibson, Scott
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    Abstract

    This is the first study of corporate-bond mutual fund performance that examines detailed security-level holdings and returns. The new database allows us to decompose the costs and benefits of active management. In contrast to prior research on equity funds that shows evidence of stock-selection ability, we do not find evidence consistent with bond fund managers, on average, being able to select corporate bonds that outperform other bonds with similar characteristics. We find neutral to weakly positive evidence of ability to time corporate bond characteristics. Overall results show that the costs of active management on average appear larger than the benefits. --

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    Bibliographic Info

    Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 10-18.

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    Date of creation: 2010
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    Handle: RePEc:zbw:cfrwps:1018

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    1. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2005. "Unobserved Actions of Mutual Funds," NBER Working Papers 11766, National Bureau of Economic Research, Inc.
    2. Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, American Finance Association, vol. 42(2), pages 233-65, June.
    3. Pinnuck, Matt, 2003. "An Examination of the Performance of the Trades and Stock Holdings of Fund Managers: Further Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 38(04), pages 811-828, December.
    4. Chen, Hsiu-Lang & Jegadeesh, Narasimhan & Wermers, Russ, 2000. "The Value of Active Mutual Fund Management: An Examination of the Stockholdings and Trades of Fund Managers," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 35(03), pages 343-368, September.
    5. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 57-82, March.
    6. Grinblatt, Mark & Titman, Sheridan, 1993. "Performance Measurement without Benchmarks: An Examination of Mutual Fund Returns," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 66(1), pages 47-68, January.
    7. Wermers, Russ, 2006. "Performance evaluation with portfolio holdings information," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 17(2), pages 207-230, August.
    8. Gordon J. Alexander & Gjergji Cici & Scott Gibson, 2007. "Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 20(1), pages 125-150, January.
    9. Coval, Joshua & Stafford, Erik, 2007. "Asset fire sales (and purchases) in equity markets," Journal of Financial Economics, Elsevier, Elsevier, vol. 86(2), pages 479-512, November.
    10. Mark Grinblatt & Sheridan Titman, . "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 23-88, Wharton School Rodney L. White Center for Financial Research.
    11. Chen, Yong & Ferson, Wayne & Peters, Helen, 2010. "Measuring the timing ability and performance of bond mutual funds," Journal of Financial Economics, Elsevier, Elsevier, vol. 98(1), pages 72-89, October.
    12. Bruce N. Lehmann & David M. Modest, 1985. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," NBER Working Papers 1721, National Bureau of Economic Research, Inc.
    13. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, American Finance Association, vol. 55(4), pages 1655-1703, 08.
    14. Yong Chen & Wayne Ferson & Helen Peters, 2009. "Measuring the Timing Ability and Performance of Bond Mutual Funds," NBER Working Papers 15318, National Bureau of Economic Research, Inc.
    15. Blake, Christopher R & Elton, Edwin J & Gruber, Martin J, 1993. "The Performance of Bond Mutual Funds," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 66(3), pages 370-403, July.
    16. Edelen, Roger M., 1999. "Investor flows and the assessed performance of open-end mutual funds," Journal of Financial Economics, Elsevier, Elsevier, vol. 53(3), pages 439-466, September.
    17. Bessembinder, Hendrik & Maxwell, William & Venkataraman, Kumar, 2006. "Market transparency, liquidity externalities, and institutional trading costs in corporate bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 82(2), pages 251-288, November.
    18. Chordia, Tarun, 1996. "The structure of mutual fund charges," Journal of Financial Economics, Elsevier, Elsevier, vol. 41(1), pages 3-39, May.
    19. Warther, Vincent A., 1995. "Aggregate mutual fund flows and security returns," Journal of Financial Economics, Elsevier, Elsevier, vol. 39(2-3), pages 209-235.
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