Taiwanese Mutual Fund Performance Under Different Central Bank of China Monetary Policy Environments

Ming-Hsiang Chen, Su-Jane Chen, Chao-Ning Liao and Chun-Ming Lin

Emerging Markets Finance and Trade, 2008, vol. 44, issue 2, 100-116

Abstract: This study examines the performance of mutual funds under different Central Bank of China monetary policy environments in the emerging Taiwan market. To measure monetary policy changes effectively, we exploit changes in the discount rate and further categorize the monetary environment as either restrictive or expansive. We consider a restrictive monetary environment to be a period in which the discount rate rises, whereas an expansive monetary condition is a period in which the discount rate drops. It is found that all mutual funds, both domestic and international funds, exhibit a higher mean return, lower risk, and higher Sharpe and Treynor ratios under expansive monetary policy environments. Regression results show that domestic mutual fund returns are related significantly to local monetary policy. Furthermore, after controlling for the possible effect of macro factors on the association between the monetary policy dummy variable and mutual fund returns, the significant influence of monetary policy on domestic mutual fund returns remains robust. In contrast, changes in U.S. monetary policy stringency, in general, do not affect the performance of either domestic or international mutual funds in Taiwan.

Keywords: discount rate; monetary policy; mutual fund returns; Taiwan (search for similar items in EconPapers)
Date: 2008
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