Economic policy uncertainty and mutual fund risk shifting

Deming Luo, Sainan Jiang and Zhongwei Yao

Pacific-Basin Finance Journal, 2023, vol. 77, issue C

Abstract: This study examines the effect of economic policy uncertainty (EPU) on mutual fund risk shifting. Using Chinese mutual fund data from 2006 to 2020, we find that managers increase risk-shifting activities when uncertainty rises. A one-standard-deviation increase in EPU is associated with a 0.27- to 0.55-standard-deviation increase in risk shifting. Managers’ tendency to shift risk stems from poor performance during high EPU periods. Managers increase the portfolio risk by switching from cash holdings to equities, engaging in sector rotation, and increasing bubble stock holdings.

Keywords: Mutual fund; Economic policy uncertainty; Risk-shifting; Fund performance (search for similar items in EconPapers)
JEL-codes: G11 G23 G28 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x22002165

DOI: 10.1016/j.pacfin.2022.101921

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