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The Performance of Corporate Bond Mutual Funds: Evidence Based on Security-Level Holdings

Published online by Cambridge University Press:  04 January 2012

Gjergji Cici  and
Scott Gibson
Gjergji Cici
Affiliation:
Mason School of Business, College of William and Mary, PO Box 8795, Williamsburg, VA 23187. Cici also holds a Research Fellow position at the Centre for Financial Research (CFR), University of Cologne. [email protected], and [email protected]
Scott Gibson
Affiliation:
Mason School of Business, College of William and Mary, PO Box 8795, Williamsburg, VA 23187. Cici also holds a Research Fellow position at the Centre for Financial Research (CFR), University of Cologne. [email protected], and [email protected]
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Abstract

This is the first study of corporate bond mutual fund performance that examines detailed security-level holdings and returns. The new database allows us to decompose the costs and benefits of active management. In contrast to prior research on equity funds that shows evidence of stock-selection ability, we do not find evidence consistent with bond fund managers, on average, being able to select corporate bonds that outperform other bonds with similar characteristics. We find neutral to weakly positive evidence of ability to time corporate bond characteristics. Overall results show that the costs of active management on average appear larger than the benefits.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 1 , February 2012 , pp. 159 - 178
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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