Are Bond ETF Investors Smart?
Posted: 6 Feb 2015 Last revised: 4 Jan 2016
Date Written: December 19, 2014
Since their introduction in 2002, bond ETFs have grown dramatically with over $243 billion in assets by the end of 2012. Using data on gross flows from N-SAR filings, we provide the first comprehensive examination of bond ETF characteristics and cash flows. We find evidence of return chasing in the net flows of some style funds; in particular, investment grade corporate, international, and TIPS. In addition to past returns, other factors related to fund flows are fund size, expense ratio, and premium/discounts. We also examine the relationship between short interest and fund flows, and find that lightly shorted funds have both lower inflows and net flows. Finally, we test if bond ETF investors optimally time their purchases and sales. We find evidence of smartness in the timing of ETF sales, with investors earning 30 basis points in alpha per month.
Keywords: Bond ETF, exchange-traded funds, flows
JEL Classification: G10
Suggested Citation: Suggested Citation