WINDOW DRESSING IN BOND MUTUAL FUNDS

We examine portfolio credit quality holding and daily return patterns in a large sample of bond mutual funds and document evidence of window dressing. Using portfolio credit quality holdings data, we find that bond funds on average hold significantly more government bonds during disclosure than nond...

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Bibliographic Details
Published in:The Journal of financial research 2006-09, Vol.29 (3), p.325-347
Main Authors: Morey, Matthew R., O'Neal, Edward S.
Format: Article
Language:English
Subjects:
G11
G20
G23
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Summary:We examine portfolio credit quality holding and daily return patterns in a large sample of bond mutual funds and document evidence of window dressing. Using portfolio credit quality holdings data, we find that bond funds on average hold significantly more government bonds during disclosure than nondisclosure, presumably to present a safer portfolio to shareholders. Multiple‐index market models estimated with daily returns data corroborate these findings. We detect differences in factor loadings on days surrounding disclosure dates that indicate systematic tilting of the portfolio toward higher quality instruments.
ISSN:0270-2592
1475-6803
DOI:10.1111/j.1475-6803.2006.00181.x