International mutual fund returns and Federal Reserve policy
DOI:
https://doi.org/10.1016/S1057-0810(99)00043-8Keywords:
Monetary policy, Discount rate, International diversification, Federal ReserveAbstract
This study examines the performance of international mutual fund indexes across alternative Federal Reserve monetary policy environments. The results suggest that the benefits touted by advocates of international diversification may be less than previous studies indicate. Specifically, during restrictive US monetary policy periods, international mutual fund indexes provide lower excess returns than domestic counterparts. Additionally, the correlations between international mutual funds and domestic mutual funds are higher during restrictive monetary policy periods. This evidence may represent a partial explanation for the home country bias exhibited by US-based individual and institutional investors. © 2000 Elsevier Science Inc. All rights reserved.
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