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Navigating Geoeconomic Risk: Evidence from U.S. Mutual Funds

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Abstract

Firm-level geoeconomic risk can affect even broadly diversified mutual fund portfolios. We study U.S. export controls that restrict sales of cutting-edge technology to selected Chinese firms for national security reasons. The stock prices of affected domestic suppliers drop immediately after the policy introduction. Mutual funds holding these stocks experience increased volatility and lower returns. Fund managers respond by selling stocks of exporters to China, buying lottery-like stocks, and increasing portfolio concentration. While stock-picking and market-timing skills do not help, specialist and high-fee funds are better at navigating geoeconomic risk.

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  • Matteo Crosignani & Lina Han & Marco Macchiavelli, 2025. "Navigating Geoeconomic Risk: Evidence from U.S. Mutual Funds," Staff Reports 1172, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:102163
    DOI: 10.59576/sr.1172
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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