 Do Mutual Funds’ Exposure to Financial Stress Predict Their Future Returns? Evidence From ChinaSha Zhu, Fujun Lai, Jie Deng and Qian Wang SAGE Open, 2021, vol. 11, issue 4, 21582440211054130 Abstract: How macroeconomic risk affects asset prices is an important issue in the academic and industrial fields. This paper measures Chinese financial stress (CFSI) by constructing a new index, and empirically verifies the pricing relationship between financial stress and Chinese mutual fund returns. First, we use eight source variables, which are the driving forces of financial market risk and financial stability, from bank, security, and foreign exchange markets, to build a new index representing financial stress. In addition, we estimate mutual funds’ exposure to financial stress and find that the resulting financial stress betas explain a significant proportion of the cross-sectional dispersion in mutual fund returns. Moreover, this result also remains robust when we conduct tests using other macroeconomic indices or control for the Fama–French and Carhart four factors. Hence, we argue that financial stress is a powerful determinant of cross-sectional differences in Chinese mutual fund returns and plays an important role in the sustainable development of financial markets. Keywords: macroeconomic risk; financial stability; financial stress; fund return; risk regulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:11:y:2021:i:4:p:21582440211054130 DOI: 10.1177/21582440211054130 Access Statistics for this article More articles in SAGE Open |
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