Are Bond ETF Investors Smart?

Posted: 6 Feb 2015 Last revised: 4 Jan 2016

See all articles by Jon A. Fulkerson

Jon A. Fulkerson

University of Dayton

Susan D. Jordan

University of Kentucky - Finance

Denver Travis

Loyola University New Orleans - College of Business

Date Written: December 19, 2014

Abstract

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

Fulkerson, Jon A. and Jordan, Susan D. and Travis, Denver, Are Bond ETF Investors Smart? (December 19, 2014). The Journal of Fixed Income, Volume 24, Number 4, Spring 2015, Pages 60 – 83. (Abstracted in CFA Digest, Volume 45, Number 11, November 2015.) , Available at SSRN: https://ssrn.com/abstract=2560515

Jon A. Fulkerson

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

Susan D. Jordan

University of Kentucky - Finance ( email )

Gatton College of Business & Economics
University of Kentucky
Lexington, KY 40506-0034
United States
859-257-1626 (Phone)

Denver Travis (Contact Author)

Loyola University New Orleans - College of Business

6363 St. Charles Avenue
New Orleans, LA 70118
United States

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