'Hot Hands' in Bond Funds
34 Pages Posted: 26 Aug 2005
There are 2 versions of this paper
'Hot Hands' in Bond Funds
'Hot Hands' in Bond Funds
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: Suggested Citation
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