Bond Mutual Funds and Complex Investments

Journal of Asset Management 2017, 18(6), 433-456

43 Pages Posted: 15 Mar 2016 Last revised: 18 Mar 2018

See all articles by Markus Natter

Markus Natter

University of Augsburg

Martin Rohleder

University of Augsburg

Dominik Schulte

University of Augsburg

Marco Wilkens

University of Augsburg

Date Written: March 14, 2018

Abstract

We are the first to analyze bond mutual funds’ permission and use of complex investment practices like derivatives, restricted securities and securities lending. Based on unique regulatory information from the SEC’s N-SAR filings, we show that most complex investments do not affect fund performance or risk. However, interest rate futures (IRF) are harmful to bond funds. Bond funds engaging in IRF (45.8% of all bond funds) underperform nonusers by economically meaningful 51 basis point p.a. (alpha). Further results reveal that bond funds employ IRF for speculation as they increase funds’ exposure towards interest rate risk.

Keywords: Mutual fund performance, bond funds performance, derivatives interest rate futures

JEL Classification: G11, G12

Suggested Citation

Natter, Markus and Rohleder, Martin and Schulte, Dominik and Wilkens, Marco, Bond Mutual Funds and Complex Investments (March 14, 2018). Journal of Asset Management 2017, 18(6), 433-456. Available at SSRN: https://ssrn.com/abstract=2748038 or http://dx.doi.org/10.2139/ssrn.2748038

Markus Natter

University of Augsburg ( email )

Universitaetsstrasse 16
Augsburg, 86159
Germany
+49 821 598 4497 (Phone)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/mitarbeiter/natter_markus/

Martin Rohleder (Contact Author)

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4120 (Phone)

Dominik Schulte

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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