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

42 Pages Posted: 15 Mar 2021

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 studies the role of mutual fund yield in driving investor flows and performance of bond funds. Using two common measures, the SEC yield and 12-month distribution yield, we find strong evidence that investors tend to chase bond funds with higher yields, even after controlling for total fund returns and fund ratings. Although bond funds with higher yields achieve higher average total returns, the return spread is less than one half of the yield spread, and is attributable to higher fund risk. We also show that high yield bond funds suffer sharp losses during crisis periods, which trigger large outflows.

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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