Hot Hands in Bond Funds

Research output: Contribution to journalArticleAcademicpeer-review

47 Citations (Scopus)

Abstract

We investigate persistence in the relative performance of 3549 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.
Original languageEnglish
Pages (from-to)559-572
Number of pages14
JournalJournal of Banking and Finance
Volume32
Issue number4
DOIs
Publication statusPublished - 2008

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