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Bond mutual fund performance: Evidence from the skill ratio and false discovery rate

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  • Lifa Huang
  • Wayne Y. Lee
  • Craig G. Rennie

Abstract

This paper applies a Skill Ratio under a False Discovery Rate (FDR) framework to bond mutual funds showing many bonds mutual fund managers are skilled primarily to the benefit of fund sponsors. Our Skill Ratio is the t‐statistic of realized gross value added (RVAG)$( {{\mathrm{RV}}{{\mathrm{A}}_{\mathrm{G}}}} )$ based on investible Morningstar benchmark‐adjusted monthly returns times the natural logarithm of assets under management (AUM). We apply a new simulation process for FDR that mitigates small sample bias and mis‐discovery on tails. For 571 actively managed domestic bond mutual fund managers between 1999 and 2016, 28.7% are skilled, including 36.3% of 226 corporate funds and 17.3% of 345 government funds.

Suggested Citation

  • Lifa Huang & Wayne Y. Lee & Craig G. Rennie, 2025. "Bond mutual fund performance: Evidence from the skill ratio and false discovery rate," The Financial Review, Eastern Finance Association, vol. 60(3), pages 865-894, August.
    • Handle: RePEc:bla:finrev:v:60:y:2025:i:3:p:865-894
    DOI: 10.1111/fire.12432
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    References listed on IDEAS

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