TY - JOUR
T1 - The effects of U.S. monetary policy shocks on mutual fund investing
AU - Banegas, Ayelen
AU - Montes-Rojas, Gabriel
AU - Siga, Lucas
N1 - Funding Information:
The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System. We are grateful to the Associate Editor, one anonymous referee, James Hamilton, Egon Zakrajšek and Jason Wu for helpful comments. We also thank seminar participants at the 2017 American Economic Association annual meeting, the 2017 Latin American Econometric Society annual meetings, and the Federal Reserve Board. An earlier version was released as a FEDS paper under the title “Mutual Fund Flows, Monetary Policy and Financial Stability.”
Publisher Copyright:
© 2022
PY - 2022/5
Y1 - 2022/5
N2 - We study the effects of unexpected changes in the stance of U.S. monetary policy on the performance and flows of mutual funds investing in domestic and international financial markets over the recent period of unconventional monetary policy. Taking an agnostic approach on the transmission mechanism of monetary policy, we find that monetary policy shocks have a direct effect on fund performance and flow dynamics, and that the effect of these surprises differs by investment strategy. Results show that an unexpected tightening of the stance of policy is associated with negative performance and outflows from fixed-income funds, in particular those investing in international, government and investment grade bond markets. Results also point to a negative relationship between equity fund performance and policy tightening. Moreover, our findings indicate that Federal Reserve's expansionary balance sheet policy (i.e. large-scale asset purchases) has a strong positive effect on the performance and flows of equity funds, especially on those investing in emerging markets.
AB - We study the effects of unexpected changes in the stance of U.S. monetary policy on the performance and flows of mutual funds investing in domestic and international financial markets over the recent period of unconventional monetary policy. Taking an agnostic approach on the transmission mechanism of monetary policy, we find that monetary policy shocks have a direct effect on fund performance and flow dynamics, and that the effect of these surprises differs by investment strategy. Results show that an unexpected tightening of the stance of policy is associated with negative performance and outflows from fixed-income funds, in particular those investing in international, government and investment grade bond markets. Results also point to a negative relationship between equity fund performance and policy tightening. Moreover, our findings indicate that Federal Reserve's expansionary balance sheet policy (i.e. large-scale asset purchases) has a strong positive effect on the performance and flows of equity funds, especially on those investing in emerging markets.
KW - Monetary policy shocks
KW - Mutual fund performance and flows
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U2 - 10.1016/j.jimonfin.2021.102595
DO - 10.1016/j.jimonfin.2021.102595
M3 - Article
AN - SCOPUS:85123802110
VL - 123
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
SN - 0261-5606
M1 - 102595
ER -