'Hot Hands' in Bond Funds

34 Pages Posted: 26 Aug 2005

See all articles by Jeroen Derwall

Jeroen Derwall

Maastricht University - European Centre for Corporate Engagement; Maastricht University - Department of Finance; Utrecht University - School of Economics

Joop Huij

Erasmus University - Rotterdam School of Management; Robeco; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

Multiple version iconThere are 2 versions of this paper

Date Written: April 16, 2007

Abstract

We investigate persistence in the relative performance of 3,549 bond mutual funds from 1990 to 2003. We show that bond funds that display strong (weak) performance over a past period continue to do so in future periods. The out-of-sample difference in risk-adjusted return between the top and bottom decile of funds ranked on past alpha exceeds 3.5 percent per year. We demonstrate that a strategy based on past fund returns earns an economically and statistically significant abnormal return, suggesting that bond fund investors can exploit the observed persistence. Our results are robust to a wide range of model specifications and bootstrapped test statistics.

Keywords: bond mutual funds, performance persistence, active management

JEL Classification: G11, G14, G19

Suggested Citation

Derwall, Jeroen and Derwall, Jeroen and Huij, Joop, 'Hot Hands' in Bond Funds (April 16, 2007). ERIM Research Paper Series, Available at SSRN: https://ssrn.com/abstract=791465 or http://dx.doi.org/10.2139/ssrn.791465

Jeroen Derwall

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=175

Maastricht University - European Centre for Corporate Engagement ( email )

FEBA
Tongersestraat 53
Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.corporate-engagement.com/

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Joop Huij (Contact Author)

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.rsm.nl/jhuij

Robeco

Rotterdam, 3014DA
Netherlands

HOME PAGE: http://www.robeco.com/

Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

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