Author: Zheming Li
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.
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