Measuring the Timing Ability of Fixed Income Mutual Funds

Measuring the Timing Ability of Fixed Income Mutual Funds This paper evaluates the ability of bond funds to "market time" factors related to bond markets. Timing ability generates nonlinearity in fund returns, but there are several non-timing-related sources of nonlinearity. We find that controlling for non-timing-related nonlinearity is important. Funds' returns are more concave than benchmark returns, relative to nine common factors, and this would appear as poor timing ability in naive models. With the controls, the overall distribution of the timing coefficients appears neutral to weakly positive. The timingadjusted performance of many bond funds appears significantly negative on an after-cost basis, but many funds have positive performance on a before-cost basis.