Why Have Actively Managed Bond Funds Remained Popular?

61 Pages Posted: 1 Apr 2020 Last revised: 11 Oct 2021

See all articles by Jaewon Choi

Jaewon Choi

University of Illinois at Urbana-Champaign - Department of Finance

Martijn Cremers

University of Notre Dame; ECGI

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: October 11, 2021

Abstract

In sharp contrast to equity funds, actively managed bond funds have remained popular. This paper explores why by examining how active share affects the performance, risk management, and flows of bond funds. We find that bond funds tend to be highly active and often invest outside of their primary asset classes. Bond funds with higher active share persistently earn higher alphas, demonstrate lower downside risk, and exhibit less flow sensitivity to poor performance (consistent with alleviating investor run risk). In conclusion, our results show that investors tend to benefit from active management in bond funds.

Keywords: Bond, Mutual Funds, Active Management, Active Share, Alpha

JEL Classification: G10, G11, G14, G20, G23

Suggested Citation

Choi, Jaewon and Cremers, K. J. Martijn and Riley, Timothy Brandon, Why Have Actively Managed Bond Funds Remained Popular? (October 11, 2021). Available at SSRN: https://ssrn.com/abstract=3557235 or http://dx.doi.org/10.2139/ssrn.3557235

Jaewon Choi (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Timothy Brandon Riley

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
222
Abstract Views
965
rank
172,819
PlumX Metrics