Despite the growth of investments by individuals in bond funds, no research has investigated the determinants of these money flows into the funds. This study examined such determinants and the behavior of bond fund investors in the 1992–2001 period. Bond fund investors chase risk-adjusted performance leaders instead of raw return leaders. Bond fund investors, particularly investors in municipal bond funds and government security funds, are sensitive to expenses, such as operating expenses and sales loads. Poor long-term equity market returns tend to increase investors' investments in government security funds, Ginnie Mae funds, and high-quality bond funds.
Exchange-Traded Funds (ETFs)