Economic policy uncertainty and fund flow performance sensitivity: Evidence from New Zealand |
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Authors: | Sara Ali Ihsan Badshah Riza Demirer Prasad Hegde |
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Affiliation: | 1. Finance Department, Business School, Auckland University of Technology, Auckland, New Zealand;2. Department of Economics & Finance, Southern Illinois University Edwardsville, Edwardsville, Illinois, USA |
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Abstract: | Utilizing a large sample of actively managed equity funds and a recently developed EPU index for New Zealand, we show that fund flow performance sensitivity decreases with policy uncertainty. The role of policy uncertainty as a determinant of fund flow performance sensitivity is found to be stronger, particularly for funds with global focus, large sized funds, high momentum funds and those with high idiosyncratic volatility and low downside risk. The findings support the argument that high policy uncertainty dampens investors' ability to process information that allows them to distinguish fund manager skill from luck. The results remain strong after accounting for various macroeconomic factors. |
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Keywords: | economic policy uncertainty fund flow performance sensitivity investor learning New Zealand EPU |
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