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Search-for-Yield in Canadian Fixed-Income Mutual Funds and Monetary Policy

Sermin Gungor and Jesus Sierra Jimenez

Staff Working Papers from Bank of Canada

Abstract: This paper investigates the effects of monetary policy on the risk-taking behavior of fixed-income mutual funds in Canada. We consider different measures of the stance of monetary policy and investigate active variation in mutual funds’ risk exposure in response to monetary policy. We find evidence in support of a systematic link between monetary conditions and intertemporal variation in the risk-taking behavior of mutual funds. Specifically, following an expansionary monetary shift, funds actively increase default-risk exposure (i.e., search-for-yield). This is particularly evident in the post-crisis period where interest rates were kept low for a prolonged period of time.

Keywords: Financial Institutions; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E52 G23 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:14-3

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