The market timing ability of bond mutual funds

Zhengnan Yin (), Niall O’Sullivan and Meadhbh Sherman
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Zhengnan Yin: University College Cork
Niall O’Sullivan: University College Cork
Meadhbh Sherman: University College Cork

Journal of Asset Management, 2024, vol. 25, issue 5, No 6, 508-527

Abstract: Abstract We apply the nonparametric methodology of Jiang (Journal of Empirical Finance 10:399–425, 2003) to examine whether bond mutual funds can time the bond market by adjusting their portfolios' market exposure based on anticipated market movement. This approach offers several advantages over the widely used regression-based tests such as Treynor and Mazuy (Harvard Business Review 44(4):131–136, 1966) and Henriksson and Merton (The Journal of Business 54(4):513–533, 1981). In a comprehensive study covering the USA, UK, and China, we find some evidence of positive market timing of bond funds at the individual fund level. On average, bond funds show neutral to slightly negative market timing abilities. After controlling for public information, we find that a smaller number of bond funds successfully time the market based on private timing signals. In terms of categories, we find strong evidence of positive market timing for Government bond funds as a group, consistent with the findings of Huang and Wang (Management Science 60:2091–2109, 2014).

Keywords: Mutual fund performance; Bond funds; Market timing; Nonparametric test (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 G23 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s41260-024-00371-2

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