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Measuring the Timing Ability and Performance of Bond Mutual Funds

49 Pages Posted: 12 Oct 2009  

Yong Chen

Texas A&M University - Department of Finance

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Helen Peters

Boston College - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 25, 2009

Abstract

This paper evaluates the ability of bond funds to "market time" nine common factors related to bond markets. Timing ability generates nonlinearity in fund returns as a function of common factors, but there are several non-timing-related sources of nonlinearity. Controlling for the non-timing-related nonlinearity is important. Funds' returns are more concave than benchmark returns, and this would appear as poor timing ability in naive models. With controls, the timing coefficients appear neutral to weakly positive. Adjusting for nonlinearity the performance of many bond funds is significantly negative on an after-cost basis, but significantly positive on a before-cost basis.

Keywords: Mutual funds, Market timing, Bond funds, Investment performance evaluation

JEL Classification: C15, C31, G12

Suggested Citation

Chen, Yong and Ferson, Wayne E. and Peters, Helen, Measuring the Timing Ability and Performance of Bond Mutual Funds (September 25, 2009). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1486431

Yong Chen (Contact Author)

Texas A&M University - Department of Finance ( email )

360 Wehner Building
College Station, TX 77843-4218
United States

Wayne E. Ferson

University of Southern California ( email )

Los Angeles, CA 90089
United States

HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Helen Peters

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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