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

Author

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  • Sermin Gungor
  • Jesus Sierra

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.

Suggested Citation

  • Sermin Gungor & Jesus Sierra, 2014. "Search-for-Yield in Canadian Fixed-Income Mutual Funds and Monetary Policy," Staff Working Papers 14-3, Bank of Canada.
    • Handle: RePEc:bca:bocawp:14-3
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    Cited by:

    1. Ciccone, Julien & Marchiori, Luca & Morhs, Romuald, 2022. "The flow-performance relationship of global investment funds," Journal of International Money and Finance, Elsevier, vol. 127(C).
    2. Denis Gorea & Oleksiy Kryvtsov & Tamon Takamura, 2016. "Leaning Within a Flexible Inflation-Targeting Framework: Review of Costs and Benefits," Discussion Papers 16-17, Bank of Canada.
    3. Oleksiy Kryvtsov & Miguel Molico & Ben Tomlin, 2015. "On the Nexus of Monetary Policy and Financial Stability: Recent Developments and Research," Discussion Papers 15-7, Bank of Canada.

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    More about this item

    Keywords

    Financial Institutions; Transmission of monetary policy;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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