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Selection and Timing Skill in Bond Mutual Fund Returns: Evidence from Bootstrap Simulations

Author

Listed:
  • Lifa Huang

    (Sam M. Walton College of Business, University of Arkansas, WCOB 475, Fayetteville, AR 72701, USA)

  • Wayne Y. Lee

    (Sam M. Walton College of Business, University of Arkansas, WCOB 475, Fayetteville, AR 72701, USA)

  • Craig G. Rennie

    (Sam M. Walton College of Business, University of Arkansas, WCOB 475, Fayetteville, AR 72701, USA)

Abstract

We show that U.S. open-end actively managed domestic bond mutual fund managers possess selection and short-term timing skills based on monthly returns from 1999 to 2016. Parametric tests bias against finding evidence of manager skill, and correction for precision of alpha matters most when true alpha is uncertain. Our bootstrap simulations use precision-adjusted alpha (t(α)) controlling for luck without relying on parametric statistics. We find: the top 50 percent of bond mutual fund managers generate positive precision-adjusted alpha net of expense; selection skill contributes to long-term fund performance; and timing skill adds to short-term fund results, especially for government bond funds compared to corporate bond funds.

Suggested Citation

  • Lifa Huang & Wayne Y. Lee & Craig G. Rennie, 2025. "Selection and Timing Skill in Bond Mutual Fund Returns: Evidence from Bootstrap Simulations," JRFM, MDPI, vol. 18(2), pages 1-50, January.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:2:p:62-:d:1579809
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    References listed on IDEAS

    as
    1. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    2. Kenneth R. French, 2008. "Presidential Address: The Cost of Active Investing," Journal of Finance, American Finance Association, vol. 63(4), pages 1537-1573, August.
    3. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    4. Chen, Yong & Ferson, Wayne & Peters, Helen, 2010. "Measuring the timing ability and performance of bond mutual funds," Journal of Financial Economics, Elsevier, vol. 98(1), pages 72-89, October.
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