High Quality Bond Funds: Market Timing Ability and Performance

Abstract

We examine the market timing performance of a sample of high quality corporate bond funds over the 1994-2003 time period. After establishing that the funds do engage in market timing activity, we find strong evidence of perverse market timing ability between cash and bonds and additional evidence of negative timing skill across bond maturities. A significant portion of the perverse timing ability that we detect across the fund sample is driven by the subset of funds with the highest expense ratios. Robustness tests suggest that our results reflect actual and not spurious timing ability. Overall, our results indicate that bond fund managers do not share the positive market timing ability of other groups of money managers that has been recently documented in the literature.

Keywords: bond mutual funds, market timing

JEL Classification: G20, G23, G11