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Bond mutual funds and complex investments

Author

Listed:
  • Markus Natter

    (University of Augsburg)

  • Martin Rohleder

    (University of Augsburg)

  • Dominik Schulte

    (Tecta Invest GmbH)

  • Marco Wilkens

    (University of Augsburg)

Abstract

We are the first to analyze bond mutual funds’ permission and use of complex investments such as derivatives, restricted securities, and securities lending. Based on unique regulatory information from the SEC’s N-SAR filings, we show that most complex investments do not affect fund performance or risk. However, interest rate futures (IRF) are harmful to bond funds. Bond funds engaging in IRF (46.94% of all bond funds) underperform nonusers by economically meaningful 54 basis point of alpha p.a. Our results reveal that bond funds employ IRF for speculation as they increase funds’ exposure toward interest rate risk.

Suggested Citation

  • Markus Natter & Martin Rohleder & Dominik Schulte & Marco Wilkens, 2017. "Bond mutual funds and complex investments," Journal of Asset Management, Palgrave Macmillan, vol. 18(6), pages 433-456, October.
    • Handle: RePEc:pal:assmgt:v:18:y:2017:i:6:d:10.1057_s41260-017-0046-7
    DOI: 10.1057/s41260-017-0046-7
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    Cited by:

    1. Martin Rohleder & Hendrik Scholz & Marco Wilkens, 2018. "Success and failure on the corporate bond fund market," Journal of Asset Management, Palgrave Macmillan, vol. 19(6), pages 429-443, October.
    2. Lukas Benz & Martin Rohleder & Janik Syryca & Marco Wilkens, 2019. "Shedding light on the exposure of mutual funds: Which investments drive mutual fund characteristics?," Journal of Asset Management, Palgrave Macmillan, vol. 20(7), pages 534-551, December.

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    More about this item

    Keywords

    mutual fund performance; bond funds; performance; derivatives; interest rate futures;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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