Date of Award
Bachelor of Arts
Ying Wang, Ph.D.
Na Dai, Ph.D.
This paper examines the use of derivatives by corporate bond mutual funds. Using a sample of 1,657 U.S. corporate bond funds from Morningstar during 2002-2018, I document a significant positive relation between the use of derivatives and corporate bond fund performance, even after controlling various fund characteristics. This relation is mainly driven by investment grade funds, but not high yield funds. Finally, while the positive relation holds for non-crisis periods, the use of derivatives appears to be negatively related to corporate bond fund performance during the crisis period. Overall, the results show that corporate bond funds that use derivatives significantly outperform those non-users especially during non-crisis periods, suggesting that the use of derivatives is indicative of corporate bond fund managers’ superior skills.
Scofield, Emily, "The Use of Derivatives by Corporate Bond Mutual Funds" (2020). Financial Analyst. 17.