Beware of Chasing Yield: Bond Fund Yield, Flows and Performance

53 Pages Posted: 15 Mar 2021 Last revised: 23 May 2022

See all articles by Hao Jiang

Hao Jiang

Michigan State University

Lily Li

Villanova University

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Date Written: March 14, 2021

Abstract

This paper establishes bond fund yield as an important driver of fund flows. Using the SEC yield and 12-month distribution yield, we find that investors tend to chase high yield bond funds after controlling for fund returns and ratings. The tendency of yield chasing is stronger in environments with low interest rates and following monetary policy easing. High yield bond funds have higher average returns, attributable to higher fund risk. During the crisis episodes, high yield bond funds suffer sharp losses and experience large outflows. These results have important implications for financial stability.

Keywords: Bond Fund, SEC Yield, Distribution Yield, Flows, Performance

JEL Classification: G10, G11, G12, G23

Suggested Citation

Jiang, Hao and Li, Lily Yuanzhi and Zheng, Lu, Beware of Chasing Yield: Bond Fund Yield, Flows and Performance (March 14, 2021). Available at SSRN: https://ssrn.com/abstract=3804118 or http://dx.doi.org/10.2139/ssrn.3804118

Hao Jiang (Contact Author)

Michigan State University ( email )

315 Eppley Center
Department of Finance
East Lansing, MI 48824
United States

HOME PAGE: http://sites.google.com/site/haojiangfinance/

Lily Yuanzhi Li

Villanova University ( email )

United States

Lu Zheng

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
9498248365 (Phone)

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