Federal policy announcements and capital reallocation: Insights from inflow and outflow trends in the U.S

Yue Qiu, Tian Xie, Wenjing Xie and Xiangzhong Zheng

Journal of International Money and Finance, 2023, vol. 139, issue C

Abstract: This paper delves into the impact of FOMC policy announcements and meeting minutes on the reallocation of US assets at the fund level. We address the challenge of uncertain reallocation scenarios through employing a data imputation technique with random forest forecasts and fund-level features. We then quantify the most predictive information from FOMC policy statements and meeting minutes through constructed diffusion indices using a supervised learning approach. By conducting predictive fixed-effect regression analyses, we unveil the significant role of incorporating textual predictors derived from FOMC statements. Our findings reveal that positive and negative signals in FOMC announcements have contrasting effects on changes in US asset allocation. Additional exercises demonstrate that net assets and reallocation channels matter for the responses of funds to FOMC statements. We also find substantial evidence of the increased attention paid to FOMC announcements after the 2008 crisis. This heightened attention notably impacts funds that adjust US holdings using their own capital. Furthermore, we examine the presence of home bias among US and non-OECD funds in comparison to other OECD-based funds. Our analysis suggests the potential presence of a home bias among US and non-OECD funds.

Keywords: Capital reallocation; Textual analysis; Machine learning; Diffusion index model (search for similar items in EconPapers)
JEL-codes: C54 C55 F21 F37 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560623001377
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:139:y:2023:i:c:s0261560623001377

DOI: 10.1016/j.jimonfin.2023.102936

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().