Martin Rohleder
Ph.D. Student, Catholic University of Eichstätt-Ingolstadt, Germany.
Hendrik Scholz
Professor, University of Erlangen-Numberg, Germany.
Marco Wilkens
Professor, University of Augsburg, Germany.Bond Fund Disappearance, or:
What’s Returns got to do with it?
In 1993, Blake, Elton and Gruber published their seminal paper on
bond fund performance (Blake et al., 1993). They state that survivorship
bias is less important for bond funds because their performance is less
variable and fewer funds disappear. But, in our opinion both samples
they use to assess survivorship bias suffer from it. Despite a possible
bias, various studies on the performance of bond funds have since been
published without treating survivorship bias or the determinants of
bond fund disappearance, some referring directly to the Blake et al.
(1993) statement (e.g., Elton et al., 1995; Silva et al., 2005).
To fill this gap we thoroughly analyze the determinants of bond
fund disappearance using probit analyses as in Brown and Goetzmann
(1995). Also, we assess the performance of various bond fund portfolios
to show whether survivorship bias is in fact of minor importance for
bond funds and why exactly this is the case. Further, we investigate
disappearance and performance for different asset classes (corporate,
government, etc.) and in different sub-periods to gain a deeper
understanding of the economics underlying bond fund disappearance.
We contribute to the bond fund literature by, to our best
knowledge, being the first to analyze bond fund disappearance in this
detail. Our findings on disappearance and performance are important
for researchers plagued by survivorship bias as well as for investors
trying to choose the right fund. Our main findings are: i) a significant
number of bond funds disappear during our 17-year sample period; ii)
we find statistically significant survivorship bias but it is indeed of
minor importance as the figures are very small; iii) the surprising
reason is that returns have almost no impact on disappearance or
survival of bond funds; iv) the key determinants of bond fund
disappearance are fund size and fund flows.