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Economic policy uncertainty and fund flow performance sensitivity: Evidence from New Zealand

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  • Sara Ali
  • Ihsan Badshah
  • Riza Demirer
  • Prasad Hegde

Abstract

Utilizing a large sample of actively managed equity funds and a recently developed EPU index for New Zealand, we show that fund flow performance sensitivity decreases with policy uncertainty. The role of policy uncertainty as a determinant of fund flow performance sensitivity is found to be stronger, particularly for funds with global focus, large sized funds, high momentum funds and those with high idiosyncratic volatility and low downside risk. The findings support the argument that high policy uncertainty dampens investors' ability to process information that allows them to distinguish fund manager skill from luck. The results remain strong after accounting for various macroeconomic factors.

Suggested Citation

  • Sara Ali & Ihsan Badshah & Riza Demirer & Prasad Hegde, 2023. "Economic policy uncertainty and fund flow performance sensitivity: Evidence from New Zealand," International Review of Finance, International Review of Finance Ltd., vol. 23(3), pages 666-679, September.
    • Handle: RePEc:bla:irvfin:v:23:y:2023:i:3:p:666-679
    DOI: 10.1111/irfi.12407
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    References listed on IDEAS

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