Abstract
The authors found that the performance of traditional fixed-income index funds is negatively affected by minimum maturity rules of the indices that the funds seek to replicate. Bonds removed from indices for violating minimum maturity rules underperformed a matched sample in an extended period surrounding their removal, resulting in a 3.5 bp loss in annualized return to the ETF from which the bonds were removed. The authors demonstrate that relaxing the minimum maturity rules could result in improved performance for a popular fixed-income index ETF.
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