Risk-taking and performance of government bond mutual funds
- Authors
- Kim, Donghyun; Li, Chengcheng; Wang, Xiaoqiong
- Issue Date
- Jul-2021
- Publisher
- Elsevier Inc.
- Keywords
- Fund flows; Government bond funds; Incentives; Performance; Risk-taking
- Citation
- International Review of Financial Analysis, v.76
- Journal Title
- International Review of Financial Analysis
- Volume
- 76
- URI
- https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/62343
- DOI
- 10.1016/j.irfa.2021.101780
- ISSN
- 1057-5219
1873-8079
- Abstract
- This paper investigates the risk exposures of government bond mutual funds and how risk-taking behavior affects fund performance. Government bond mutual funds often outperform their respective benchmark bond indexes before but not after adjusting for bond market risk factors. We show that the risk-taking behavior of fund managers helps to explain the different performances of government bond funds with and without controlling for the risk factors. Our results suggest that risk-taking leads to higher returns relative to benchmarks in normal risk periods but lower returns in high risk periods, suggesting that fund managers consistently take risky bets in fund management. We further show that the risk-taking of government bond funds is persistent and that investors typically have no ability to differentiate between the skill and risk components of fund performance. These findings suggest why fund managers have incentives to take consistently risky positions. © 2021 Elsevier Inc.
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Collections - College of Business & Economics > School of Business Administration > 1. Journal Articles
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