Navigating Geoeconomic Risk: Evidence from U.S. Mutual Funds

Matteo Crosignani, Lina Han () and Marco Macchiavelli
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Lina Han: https://www.isenberg.umass.edu/people/lina-han-0

No 1172, Staff Reports from Federal Reserve Bank of New York

Abstract: How do investors perceive and navigate the emerging geoeconomic risk? We identify firm-level geoeconomic risk using supply-chain links to Chinese firms targeted by U.S. export controls. Affected U.S. suppliers experience negative abnormal returns around policy announcements. These shocks propagate to mutual funds through portfolio holdings, raising volatility and lowering performance. Fund managers respond by reducing exposure to China-linked exporters, increasing portfolio concentration, and buying more lottery-like stocks. A long–short portfolio based on geoeconomic risk exposure earns positive and significant future returns, suggesting investors demand compensation for bearing the high geoeconomic risk.

Keywords: mutual funds; Asset allocation; geoeconomic risk; Export controls (search for similar items in EconPapers)
JEL-codes: F38 F51 G12 (search for similar items in EconPapers)
Pages: 46
Date: 2025-11-01
New Economics Papers: this item is included in nep-bec, nep-fmk and nep-rmg
Note: Revised April 2026.
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DOI: 10.59576/sr.1172

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