The market timing ability of bond mutual funds

Yin, Zhengnan; O’Sullivan, Niall; Sherman, Meadhbh

The market timing ability of bond mutual funds

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Files

s41260-024-00371-2.pdf(3.63 MB)

Published Version

Date

2024-09-17

Authors

Yin, Zhengnan

O’Sullivan, Niall

Sherman, Meadhbh

Publisher

Springer Nature

Published Version

https://doi.org/10.1057/s41260-024-00371-2

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

Citation

Yin, Z., O’Sullivan, N. and Sherman, M. (2024) 'The market timing ability of bond mutual funds', Journal of Asset Management, 25, pp. 508-527. https://doi.org/10.1057/s41260-024-00371-2