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Riding the geopolitical storm or dodging bullets: Geopolitical risk timing of mutual funds

Author

Listed:
  • Liu, Jie
  • Chen, Zhenshan
  • Lin, Gengyan
  • Zhu, Yinglun

Abstract

This study investigates the mutual fund timing of geopolitical risk and corresponding economic consequences based on open-end active stock funds data in China from January 2005 to June 2023. Mutual funds are effective at timing geopolitical risks, evidenced by their tendency to reduce market risk exposure before periods of heightened geopolitical risk. We find that geopolitical risk timing is significantly positively associated with fund performance with persistence in mutual funds' geopolitical risk timing abilities. This effect remains robust even after controlling for market, volatility, and liquidity timing of mutual funds. The results suggest that mutual funds with superior geopolitical risk timing attract greater fund inflows, highlighting their positive market value. Fund managers with experience as macro analysts and political connections are more sophisticated in timing geopolitical risk than their counterparts.

Suggested Citation

  • Liu, Jie & Chen, Zhenshan & Lin, Gengyan & Zhu, Yinglun, 2024. "Riding the geopolitical storm or dodging bullets: Geopolitical risk timing of mutual funds," Global Finance Journal, Elsevier, vol. 63(C).
  • Handle: RePEc:eee:glofin:v:63:y:2024:i:c:s1044028324001194
    DOI: 10.1016/j.gfj.2024.101047
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    More about this item

    Keywords

    Mutual fund; Geopolitical risk; Market timing;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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