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Unconventional monetary policy and the portfolio choice of international mutual funds

Author

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  • Cenedese, Gino

    (Bank of England)

  • Elard, Ilaf

    (Shanghai University of International Business and Economics)

Abstract

Unconventional monetary policy (UMP) by the US Federal Reserve, Bank of England, Bank of Japan, and European Central Bank affects the geographical portfolio choice of international mutual fund managers. UMP prompts managers of mutual funds to rebalance their portfolios away from the country conducting UMP, and increase their geographical allocation to other developed markets; there is little evidence of rebalancing towards emerging markets. The international spillover effects from UMP announcement surprises are of small economic magnitude, in contrast to the effects of actual UMP operations in the form of large-scale asset purchases (LSAPs). The results imply that while not contributing to QE-induced capital flows to emerging markets, mutual fund managers play a role in the transmission of unconventional monetary policy, in particular LSAPs, across developed markets.

Suggested Citation

  • Cenedese, Gino & Elard, Ilaf, 2018. "Unconventional monetary policy and the portfolio choice of international mutual funds," Bank of England working papers 705, Bank of England.
    • Handle: RePEc:boe:boeewp:0705
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    1. Banegas, Ayelen & Montes-Rojas, Gabriel & Siga, Lucas, 2022. "The effects of U.S. monetary policy shocks on mutual fund investing," Journal of International Money and Finance, Elsevier, vol. 123(C).
    2. Gnabo, Jean-Yves & Soudant, Joey, 2022. "Monetary policy and portfolio rebalancing: Evidence from European equity mutual funds," Journal of Financial Stability, Elsevier, vol. 63(C).
    3. Bubeck, Johannes & Habib, Maurizio Michael & Manganelli, Simone, 2018. "The portfolio of euro area fund investors and ECB monetary policy announcements," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 103-126.
    4. Qiu, Yue & Xie, Tian & Xie, Wenjing & Zheng, Xiangzhong, 2023. "Federal policy announcements and capital reallocation: Insights from inflow and outflow trends in the U.S," Journal of International Money and Finance, Elsevier, vol. 139(C).
    5. Ines Buono & Flavia Corneli & Enrica Di Stefano, 2024. "Capital inflows to emerging countries and their sensitivity to the global financial cycle," International Finance, Wiley Blackwell, vol. 27(1), pages 17-34, April.
    6. Jing Chen & Junxiong Fang & Chunqiu Zhang & Yi Zhou, 2023. "Homemade international diversification under economic policy uncertainty," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(1), pages 31-62, February.
    7. Graziano, Marco & Habib, Maurizio Michael, 2024. "Mutual funds and safe government bonds: do returns matter?," Working Paper Series 2931, European Central Bank.
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    More about this item

    Keywords

    Unconventional monetary policy; portfolio rebalancing; international spillovers; asset allocation; mutual funds;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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