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Missing the marks? Dispersion in corporate bond valuations across mutual funds

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  • Cici, Gjergji
  • Gibson, Scott
  • Merrick, John J.

Abstract

We study the dispersion of month-end valuations placed on identical corporate bonds by different mutual funds. Such dispersion is related to bond-specific characteristics associated with liquidity and market volatility. TRACE may have contributed to the general decline in dispersion over our sample period, though other factors most likely played roles. Further tests reveal marking patterns to be consistent with returns smoothing behavior by managers. Funds with ambiguous marking policies and those holding 'hard-to-mark' bonds appear more prone to smooth reported returns. From a regulatory perspective, we see little downside to requiring funds to explicitly state their marking standards.

Suggested Citation

  • Cici, Gjergji & Gibson, Scott & Merrick, John J., 2010. "Missing the marks? Dispersion in corporate bond valuations across mutual funds," CFR Working Papers 10-20, University of Cologne, Centre for Financial Research (CFR).
    • Handle: RePEc:zbw:cfrwps:1020
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    References listed on IDEAS

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    1. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 631-653.
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    Cited by:

    1. Cici, Gjergji & Kempf, Alexander & Pütz, Alexander, 2010. "Caught in the act: How hedge funds manipulate their equity positions," CFR Working Papers 10-15, University of Cologne, Centre for Financial Research (CFR).

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