Missing the Marks: Dispersion in Corporate Bond Valuations Across Mutual Funds

Journal of Financial Economics, Forthcoming

51 Pages Posted: 22 Mar 2008 Last revised: 14 Jul 2010

Gjergji Cici

University of Kansas - School of Business

Scott Gibson

College of William and Mary - Mason School of Business

John J. Merrick

College of William and Mary - Mason School of Business

Date Written: July 14, 2010

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.

Keywords: mutual funds, bonds, valuation, fair value, corporate bond funds

JEL Classification: G19, G29

Suggested Citation

Cici, Gjergji and Gibson, Scott and Merrick, John J., Missing the Marks: Dispersion in Corporate Bond Valuations Across Mutual Funds (July 14, 2010). Journal of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1104508 or http://dx.doi.org/10.2139/ssrn.1104508

Gjergji Cici (Contact Author)

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

George Scott Gibson

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757/221-1673 (Phone)

John J. Merrick

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757-221-2721 (Phone)
757-221-2937 (Fax)

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