Abstract
This paper investigates the effect of economic policy uncertainty on mutual fund’s risk adjusting behavior by using the data of active management mutual funds operated in 2008-2017 in China. The empirical result shows a strong positive relationship between economic policy uncertainty and mutual fund’s risk level. Moreover, mutual funds which performed better in the previous period are more eager to raise their risk levels when the uncertainty is high. It means that mutual funds may still take a risk to chase the limited money when the market sentiment is pessimistic. Our research contributes to the debate of the possible responses made by investors when market is in high uncertainty. It provides a reference for properly making policy decisions and accessing mutual funds.
Highlights
Policy decision is the main way for government to realize macroeconomic regulation
Scholars tried to explain the responses made by corporations and investors when the market is in high uncertainty to investigate the potential damage caused by frequent policy changes
We analyze the effect of economic policy uncertainty on the risk adjustment of mutual funds, paying close attention to the actions of institutional investors under macro environment’s changing
Summary
Policy decision is the main way for government to realize macroeconomic regulation. Since the global financial crisis in 2008, governments all over the world made numerical policy decisions in the several years trying to save the economy. Scholars tried to explain the responses made by corporations and investors when the market is in high uncertainty to investigate the potential damage caused by frequent policy changes. Based on the above background, we contributed to the debate in this paper by investigating the effect of economic policy uncertainty on mutual fund’s risk adjusting behavior in China. In this way, we get a deeper understanding about how uncertainty environment affects investors and financial market. We get a deeper understanding about how uncertainty environment affects investors and financial market It provides more empirical evidence about mutual funds’ risk adjustment behavior in different situations. It is necessary to consider the macro factors such as economic policy uncertainty when assessing mutual funds’ performance
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