Reaching for yield in corporate bond mutual funds

Jaewon Choi, Mathias Kronlund

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

We examine “reaching for yield” in U.S. corporate bond mutual funds. We define reaching for yield as tilting portfolios toward bonds with yields higher than the benchmarks. We find that funds generate higher returns and attract more inflows when they reach for yield, especially in periods of low-interest rates. Returns for high reaching-for-yield funds nevertheless tend to be negative on a risk-adjusted basis. Funds engage in rank-chasing behavior by reaching for yield, although these incentives are moderated by the illiquid nature of corporate bonds. High reaching-for-yield funds hold less cash and less liquid bonds, exacerbating redemption risks.

Original languageEnglish
Pages (from-to)1930-1965
Number of pages36
JournalReview of Financial Studies
Volume31
Issue number5
DOIs
Publication statusPublished - 2018 May 1

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Corporate bonds
Mutual funds
Interest rates
Benchmark
Cash
Incentives

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Choi, Jaewon ; Kronlund, Mathias. / Reaching for yield in corporate bond mutual funds. In: Review of Financial Studies. 2018 ; Vol. 31, No. 5. pp. 1930-1965.
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Reaching for yield in corporate bond mutual funds. / Choi, Jaewon; Kronlund, Mathias.

In: Review of Financial Studies, Vol. 31, No. 5, 01.05.2018, p. 1930-1965.

Research output: Contribution to journalArticle

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