"Hot Hands" in bond funds

Joop Huij and Jeroen Derwall

Journal of Banking & Finance, 2008, vol. 32, issue 4, 559-572

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 3.5Â 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.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:32:y:2008:i:4:p:559-572

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