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Are Bond ETF Investors Smart?

Jon A. Fulkerson, Susan D. Jordan and Denver H. Travis
The Journal of Fixed Income Spring 2015, 24 (4) 60-83; DOI: https://doi.org/10.3905/jfi.2015.24.4.060
Jon A. Fulkerson
is an assistant professor of finance at the Sellinger School of Business, Loyola University Maryland in Baltimore, MD.
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  • For correspondence: jafulkerson@loyola.edu
Susan D. Jordan
is an associate professor of finance at the Gatton College of Business and Economics, University of Kentucky in Lexington, KY.
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  • For correspondence: sjordan@uky.edu
Denver H. Travis
is an associate professor of finance at the College of Business and Technology, Eastern Kentucky University in Richmond, KY.
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  • For correspondence: denver.travis@eku.edu
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Abstract

Since their introduction in 2002, bond ETFs have grown dramatically, with more than $243 billion in assets by the end of 2012. Using data on gross flows from N-SAR filings, we provide the first comprehensive examination of bond ETF characteristics and cash flows. We find evidence of return chasing in the net flows of some fund styles; in particular, investment grade corporate, international, and TIPS funds. In addition to past returns, other factors related to fund flows are fund size, expense ratio, and premium/discounts. We also examine the relationship between short interest and fund flows, and find that lightly shorted funds have both lower inflows and net flows. Finally, we test if bond ETF investors optimally time their purchases and sales. We find evidence of smartness in the timing of ETF sales, with investors earning 30 basis points in alpha per month.

TOPICS: Fixed income and structured finance, exchange-traded funds and applications, factor-based models

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The Journal of Fixed Income: 24 (4)
The Journal of Fixed Income
Vol. 24, Issue 4
Spring 2015
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Are Bond ETF Investors Smart?
Jon A. Fulkerson, Susan D. Jordan, Denver H. Travis
The Journal of Fixed Income Mar 2015, 24 (4) 60-83; DOI: 10.3905/jfi.2015.24.4.060

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Are Bond ETF Investors Smart?
Jon A. Fulkerson, Susan D. Jordan, Denver H. Travis
The Journal of Fixed Income Mar 2015, 24 (4) 60-83; DOI: 10.3905/jfi.2015.24.4.060
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  • Article
    • Abstract
    • BACKGROUND
    • DATA
    • MODEL DESCRIPTION AND FULL SAMPLE RESULTS
    • ETF SHORT INTEREST
    • FLOWS AND RETURNS
    • CONCLUSION
    • ENDNOTES
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