Journal of Financial Economics, Forthcoming
51 Pages Posted: 22 Mar 2008 Last revised: 14 Jul 2010
Date Written: July 14, 2010
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: 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