IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v18y2025i2p62-d1579809.html
   My bibliography  Save this article

Selection and Timing Skill in Bond Mutual Fund Returns: Evidence from Bootstrap Simulations

Author

Listed:
  • Lifa Huang

    (Sam M. Walton College of Business, University of Arkansas, WCOB 475, Fayetteville, AR 72701, USA)

  • Wayne Y. Lee

    (Sam M. Walton College of Business, University of Arkansas, WCOB 475, Fayetteville, AR 72701, USA)

  • Craig G. Rennie

    (Sam M. Walton College of Business, University of Arkansas, WCOB 475, Fayetteville, AR 72701, USA)

Abstract

We show that U.S. open-end actively managed domestic bond mutual fund managers possess selection and short-term timing skills based on monthly returns from 1999 to 2016. Parametric tests bias against finding evidence of manager skill, and correction for precision of alpha matters most when true alpha is uncertain. Our bootstrap simulations use precision-adjusted alpha (t(α)) controlling for luck without relying on parametric statistics. We find: the top 50 percent of bond mutual fund managers generate positive precision-adjusted alpha net of expense; selection skill contributes to long-term fund performance; and timing skill adds to short-term fund results, especially for government bond funds compared to corporate bond funds.

Suggested Citation

  • Lifa Huang & Wayne Y. Lee & Craig G. Rennie, 2025. "Selection and Timing Skill in Bond Mutual Fund Returns: Evidence from Bootstrap Simulations," JRFM, MDPI, vol. 18(2), pages 1-50, January.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:2:p:62-:d:1579809
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/18/2/62/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/18/2/62/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    2. Kenneth R. French, 2008. "Presidential Address: The Cost of Active Investing," Journal of Finance, American Finance Association, vol. 63(4), pages 1537-1573, August.
    3. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chang, Xiaochen & Guo, Songlin & Huang, Junkai, 2022. "Kidnapped mutual funds: Irrational preference of naive investors and fund incentive distortion," International Review of Financial Analysis, Elsevier, vol. 83(C).
    2. Clemens Sialm & Hanjiang Zhang, 2020. "Tax‐Efficient Asset Management: Evidence from Equity Mutual Funds," Journal of Finance, American Finance Association, vol. 75(2), pages 735-777, April.
    3. Zhang, Jinhua & Wang, Guipu & Yan, Cheng, 2020. "Can foreign equity funds outperform their benchmarks? New evidence from fund-holding data for China," Economic Modelling, Elsevier, vol. 90(C), pages 11-20.
    4. Swasti Gupta‐Mukherjee & Ankur Pareek, 2020. "Limited attention and portfolio choice: The impact of attention allocation on mutual fund performance," Financial Management, Financial Management Association International, vol. 49(4), pages 1083-1125, December.
    5. Wolfgang Bessler & David Blake & Peter Lückoff & Ian Tonks, 2018. "Fund Flows, Manager Changes, and Performance Persistence [Does motivation matter when assessing trade performance? An analysis of mutual funds]," Review of Finance, European Finance Association, vol. 22(5), pages 1911-1947.
    6. Nicolae Gârleanu & Lasse Heje Pedersen, 2018. "Efficiently Inefficient Markets for Assets and Asset Management," Journal of Finance, American Finance Association, vol. 73(4), pages 1663-1712, August.
    7. Darwin Choi & Bige Kahraman & Abhiroop Mukherjee, 2016. "Learning about Mutual Fund Managers," Journal of Finance, American Finance Association, vol. 71(6), pages 2809-2860, December.
    8. Itzhak Ben-David & Francesco Franzoni & Byungwook Kim & Rabih Moussawi & Ralph Koijen, 2023. "Competition for Attention in the ETF Space," The Review of Financial Studies, Society for Financial Studies, vol. 36(3), pages 987-1042.
    9. Bessler, Wolfgang & Blake, David & Lückoff, Peter & Tonks, Ian, 2010. "Why does mutual fund performance not persist? The impact and interaction of fund flows and manager changes," MPRA Paper 34185, University Library of Munich, Germany.
    10. Fulkerson, Jon A. & Riley, Timothy B., 2019. "Portfolio concentration and mutual fund performance," Journal of Empirical Finance, Elsevier, vol. 51(C), pages 1-16.
    11. John H. Cochrane, 2013. "Finance: Function Matters, Not Size," Journal of Economic Perspectives, American Economic Association, vol. 27(2), pages 29-50, Spring.
    12. Mark Grinblatt & Seppo Ikäheimo & Matti Keloharju & Samuli Knüpfer, 2016. "IQ and Mutual Fund Choice," Management Science, INFORMS, vol. 62(4), pages 924-944, April.
    13. Jesse Blocher & Marat Molyboga, 2017. "The Revealed Preference of Sophisticated Investors," European Financial Management, European Financial Management Association, vol. 23(5), pages 839-872, October.
    14. Berk, Jonathan B. & van Binsbergen, Jules H., 2016. "Assessing asset pricing models using revealed preference," Journal of Financial Economics, Elsevier, vol. 119(1), pages 1-23.
    15. Yevgeny Mugerman & Nadav Steinberg, 2024. "How Do Mutual Fund Management Fee Changes Impact Mutual Fund Flows," Bank of Israel Working Papers 2024.12, Bank of Israel.
    16. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2015. "Scale and skill in active management," Journal of Financial Economics, Elsevier, vol. 116(1), pages 23-45.
    17. Jiang, Hao & Sun, Zheng, 2014. "Dispersion in beliefs among active mutual funds and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 114(2), pages 341-365.
    18. Jezek, M., 2009. "Passive Investors, Active Traders and Strategic Delegation of Price Discovery," Cambridge Working Papers in Economics 0951, Faculty of Economics, University of Cambridge.
    19. Savov, Alexi, 2014. "The price of skill: Performance evaluation by households," Journal of Financial Economics, Elsevier, vol. 112(2), pages 213-231.
    20. Bianchi, Daniele & Babiak, Mykola, 2022. "On the performance of cryptocurrency funds," Journal of Banking & Finance, Elsevier, vol. 138(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:18:y:2025:i:2:p:62-:d:1579809. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.