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Toward a Macroprudential Regulatory Framework for Mutual Funds

Author

Listed:
  • Christos Argyropoulos

    (Lancaster University)

  • Bertrand Candelon

    (Université Catholique de Louvain)

  • Jean-Baptiste Hasse

    (Aix-Marseille University)

  • Ekaterini Panopoulou

    (University of Essex)

Abstract

This paper highlights the procyclical and unstable behaviour of mutual fund returns. It proposes a novel factor model that allows for regime changes associated with macroeconomic variables. Estimated on a panel covering 825 US equity mutual funds over a period of 30 years, it appears that the yield curve, the dividend yield and the industrial production coincide with regimes switches in the Fama-French factors. Furthermore, the estimated regimes perfectly match financial crises and economic downturns, thus confirming the procyclical behaviour of mutual funds' returns. These findings, coupled with the emerging systemic role of mutual funds, promote the consideration for a specific macroprudential regulatory framework.

Suggested Citation

  • Christos Argyropoulos & Bertrand Candelon & Jean-Baptiste Hasse & Ekaterini Panopoulou, 2020. "Toward a Macroprudential Regulatory Framework for Mutual Funds," GRU Working Paper Series GRU_2020_008, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2020_008
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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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