First Faculty Advisor
bonds; bond funds; bond mutual funds; fund size; Finance
Mutual funds have become a staple for retirement savings and have received much research attention. Bond funds, though, have received little attention to date, and the effects of fund size on performance are still in dispute. Using cross sectional and time series regression analysis, the performance of high yield and corporate bond funds are contrasted, with potential causes for the differences identified. A few fundamental economic variables are found to explain a large portion of fund returns. Bond index returns are found to have the greatest impact of any variable on fund returns, with the most pronounced effect on large corporate bond funds. The impact of fund size on performance is also examined, with evidence suggesting that after a point fund returns are negatively impacted as net assets grow. This poses a key microeconomic question regarding the benefits and costs of fund scale.