On Economies of Scale and Persistent Performance in Corporate-Bond Mutual Funds

59 Pages Posted: 19 May 2008 Last revised: 14 Dec 2009

See all articles by Roberto C. Gutierrez

Roberto C. Gutierrez

University of Oregon

William F. Maxwell

Southern Methodist University (SMU) - Finance Department

Danielle Xu

Gonzaga University

Date Written: December 1, 2009

Abstract

Studies of stock mutual funds find little evidence of persistence in performance. The most common interpretation for such limited persistence is that dispersion in performance is driven largely by managers' luck. However, Berk and Green (2004) contend that managers are skilled and limited persistence is due to diseconomies of scale in mutual funds. In contrast to the findings of diseconomies of scale in stock mutual funds, we find no relation between performance and lagged fund size in corporate-bond mutual funds. Without diseconomies, bond funds display persistence in performance that is long-lived. Prior winners outperform prior losers for the next four years, net or gross of expenses. Moreover, prior winners generate positive alpha gross of expenses for the next four years. This persistence in performance is evident controlling for various fund characteristics and seems largely due to differences in managers' skills, as opposed to luck.

Keywords: mutual funds, corporate bonds, bonds, persistence

JEL Classification: G12, G14

Suggested Citation

Gutierrez, Roberto C. and Maxwell, William F. and Xu, Danielle, On Economies of Scale and Persistent Performance in Corporate-Bond Mutual Funds (December 1, 2009). Available at SSRN: https://ssrn.com/abstract=1133959 or http://dx.doi.org/10.2139/ssrn.1133959

Roberto C. Gutierrez

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-3254 (Phone)
541-346-3341 (Fax)

William F. Maxwell (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Danielle Xu

Gonzaga University ( email )

Spokane, WA 99258
United States

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