The Effect of Monetary Policy Shocks on Mutual Fund Investing

60 Pages Posted: 24 Jan 2021

See all articles by Ayelen Banegas

Ayelen Banegas

Board of Governors of the Federal Reserve System

Gabriel Montes-Rojas

University of Buenos Aires (UBA) - Universidad de Buenos Aires

Lucas Siga

New York University (NYU) - Abu Dhabi

Date Written: August 31, 2018

Abstract

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

Banegas, Ayelen and Montes-Rojas, Gabriel and Siga, Lucas, The Effect of Monetary Policy Shocks on Mutual Fund Investing (August 31, 2018). Available at SSRN: https://ssrn.com/abstract=3550128 or http://dx.doi.org/10.2139/ssrn.3550128

Ayelen Banegas (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Gabriel Montes-Rojas

University of Buenos Aires (UBA) - Universidad de Buenos Aires ( email )

Argentina

HOME PAGE: http://gabrielmontes.com.ar

Lucas Siga

New York University (NYU) - Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

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