Manager Characteristics and Credit Derivative Use by U.S. Corporate Bond Funds

This study provides a comprehensive overview of the use of credit
default swaps by U.S. corporate bond funds and analyzes in detail
whether certain characteristics of managers, in addition to the
fundamentals of a fund, determine how their use these credit
derivatives. Results suggest that a manager’s education, age,
experience, and skill are positively correlated with a fund’s CDS
holdings. In particular, managers holding a master’s degree or
educated at prestigious universities prefer using CDS. However,
funds with older, more experienced managers or these keeping higher
assets under their management are more likely to take on credit
risk via selling CDS protection. Younger managers or managers that
were educated at prestigious universities rather tend to buy CDS
protection possibly due to differing concerns about their careers.
If considering the Heckman correction for self-selection of funds
into CDS use, the aforementioned findings remain stable.