The Timing Ability of Fixed Income Mutual Funds

Abstract

This paper evaluates the ability of US fixed income mutual funds to time common factors related to bond markets. We control for potential non-timing-related sources of nonlinearity in the relation between fund returns and common factors. Such nonlinearities may arise from dynamic trading strategies or derivatives, funds' responses to public information, they may appear in the underlying assets held by the fund, or they may be related to systematic patterns in stale pricing. Controlling for these effects we find that funds returns are more typically concave than convex, in relation to benchmark returns, which suggests negative timing ability. Thus, the evidence is similar to what previous studies have found for equity funds.