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"Hot Hands" in bond funds

  • Huij, Joop
  • Derwall, Jeroen

We investigate persistence in the relative performance of 3549 bond mutual funds from 1990 to 2003. We show that bond funds that display strong (weak) performance over a past period continue to do so in future periods. The out-of-sample difference in risk-adjusted return between the top and bottom decile of funds ranked on past alpha exceeds 3.5Â percent per year. We demonstrate that a strategy based on past fund returns earns an economically and statistically significant abnormal return, suggesting that bond fund investors can exploit the observed persistence. Our results are robust to a wide range of model specifications and bootstrapped test statistics.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 32 (2008)
Issue (Month): 4 (April)
Pages: 559-572

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Handle: RePEc:eee:jbfina:v:32:y:2008:i:4:p:559-572
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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