The impact of policy uncertainty on the performance of mutual funds: empirical evidence from the US.

Abstract

The aim of this thesis is to investigate the effect of economic policy uncertainty on the performance of US mutual funds. Our analysis is based on monthly returns of 30 Mutual funds , Fama French 4 factor model and EPU indices during the period of January 2000 to February 2021 covering more than 20 years. The empirical findings demonstrate a substantial positive association between the unpredictability of economic policy and the risk level of the mutual fund. Furthermore, when the uncertainty is high, mutual funds that performed well in the previous period are more eager to increase their risk levels. When market sentiment is gloomy, mutual funds may nonetheless take a risk to chase the limited money. Moreover, increased changes in economic policy uncertainty have a negative impact on the performance of the US mutual funds.