Hot Hands in Bond Funds

J.M.M. Derwall, J. Huij*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


We investigate persistence in the relative performance of 3549 bond mutual funds from 1990 to 2003. We show that bond funds that display strong (weak) performance over a past period continue to do so in future periods. The out-of-sample difference in risk-adjusted return between the top and bottom decile of funds ranked on past alpha exceeds 3.5 percent per year. We demonstrate that a strategy based on past fund returns earns an economically and statistically significant abnormal return, suggesting that bond fund investors can exploit the observed persistence. Our results are robust to a wide range of model specifications and bootstrapped test statistics.
Original languageEnglish
Pages (from-to)559-572
Number of pages14
JournalJournal of Banking & Finance
Issue number4
Publication statusPublished - 1 Jan 2008

Cite this