Finance and Financial Management Commons^™

On The Cash Holdings Of Corporate Bond Mutual Funds, Andrew Punnoose

Financial Analyst

In this research, I examine the impact of cash holdings on the risk and returns of U.S. corporate bond mutual funds. Using a sample of 1,672 corporate bond funds during 2002-2019, I find that higher cash holdings are significantly associated with lower risk-adjusted returns and lower total and idiosyncratic volatilities of corporate bond funds. Further analysis suggests that these results are mainly driven by non-crisis periods when cash holdings might adversely impact the alpha of corporate bond mutual funds while reducing risk for these funds. During the crisis periods, however, we do not document a negative relation between cash holdings …