Search-for-Yield in Canadian Fixed-Income Mutual Funds and Monetary Policy
AbstractThis 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.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 14-3.
Length: 36 pages
Date of creation: 2014
Date of revision:
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Financial Institutions; Transmission of monetary policy;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-05-09 (All new papers)
- NEP-MAC-2014-05-09 (Macroeconomics)
- NEP-MON-2014-05-09 (Monetary Economics)
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