How Smart is the 'Smart Money'? Evidence from Corporate Bond Mutual Funds

Return Chasing in Bond Funds

“…This three-factor model is most similar to Chen and Qin [2012]. The global high yield index less the global high quality index captures the global premium for speculative yield bonds.…”

“…Blake, Elton, and Gruber [1993] find underperformance in the United States from 1979 to 1988; Dahlquist, Engstrom, and Soderlind [2000] observe underperformance in Sweden from 1992 to 1997; Huij and Derwall [2008] generally observe negative alphas in their U.S. sample from 1990 to 2003; and, in a large sample with the longest time frame, Chen and Qin [2012] find negative alphas in U.S. corporate bond funds from 1991 to 2009. Blake, Elton, and Gruber [1993] find underperformance in the United States from 1979 to 1988; Dahlquist, Engstrom, and Soderlind [2000] observe underperformance in Sweden from 1992 to 1997; Huij and Derwall [2008] generally observe negative alphas in their U.S. sample from 1990 to 2003; and, in a large sample with the longest time frame, Chen and Qin [2012] find negative alphas in U.S. corporate bond funds from 1991 to 2009.…”

“…Chen and Qin [2012] in Equation (3) demonstrate a typical use, including an investmentgrade corporate bond index, a high-yield corporate bond index, and a government index (all from Barclays). To our knowledge, only Chen and Qin [2012] examine the cash f low behavior of bond funds. SPRING 2013 Surprisingly, the bond fund literature has paid relatively little attention to the possibility of return chasing.…”

Predictability in Bond ETF Returns

“…Similar to Chen and Qin [2012], we control for overall market movement by including four factors that correspond to returns on Barclays bond indexes. Similar to Chen and Qin [2012], we control for overall market movement by including four factors that correspond to returns on Barclays bond indexes.…”