The Behavior of Investor Flows in Corporate Bond Mutual Funds

This paper provides a comprehensive examination of money flows in corporate bond funds, which, although less researched, represent an important setting to study investor behavior. Based on a large sample of corporate bond funds over 1991-2014, we first show that flows are sensitive to both fund performance and macroeconomic conditions, but unlike equity funds, the flow-performance relationship is not convex. Then, we find that investor flows can predict fund performance. More importantly, the predictability cannot be explained by return momentum or price pressure but is subsumed by performance persistence. Finally, an examination of idiosyncratic flows reveals little evidence that fund investors use finer-than-public information.