The Effect of Monetary Policy Shocks on Mutual Fund Investing
60 Pages Posted: 24 Jan 2021
Date Written: August 31, 2018
We study the links between unexpected changes in the stance of monetary policy and mutual fund performance and ﬂows using data over the 2000–17 period. We ﬁnd that monetary policy shocks, through their direct eﬀect on asset prices, can have an impact on mutual fund returns and ﬂow dynamics, and that the eﬀect of these shocks diﬀers by investment strategy. Using monetary policy measures capturing both target and path shocks during periods of conventional and unconventional monetary policy, results show that an unexpected tightening of the stance of policy is associated with negative performance and outﬂows from bond funds, in particular those investing in investment grade, government, and international bonds. However, these eﬀects appear to be transitory, persisting only for a few months, and providing little support to the hypothesis that unanticipated monetary policy changes could trigger large and destabilizing eﬀects on the returns and ﬂows of mutual funds.
Keywords: Mutual funds, monetary policy shocks
JEL Classification: G20, G23, E52
Suggested Citation: Suggested Citation