Affiliation:
1. Yunnan University of Finance and Economics, Kunming, China
2. China Chengxin International Credit Rating Co. Ltd., Beijing, China
3. Central University of Finance and Economics, Beijing, China
Abstract
How macroeconomic risk affects asset prices is an important issue in the academic and industrial fields. This paper measures Chinese financial stress (CFSI) by constructing a new index, and empirically verifies the pricing relationship between financial stress and Chinese mutual fund returns. First, we use eight source variables, which are the driving forces of financial market risk and financial stability, from bank, security, and foreign exchange markets, to build a new index representing financial stress. In addition, we estimate mutual funds’ exposure to financial stress and find that the resulting financial stress betas explain a significant proportion of the cross-sectional dispersion in mutual fund returns. Moreover, this result also remains robust when we conduct tests using other macroeconomic indices or control for the Fama–French and Carhart four factors. Hence, we argue that financial stress is a powerful determinant of cross-sectional differences in Chinese mutual fund returns and plays an important role in the sustainable development of financial markets.
Funder
the Scientific Research Fund Project of Yunnan Education Department
The Scientific Research Foundation of Yunnan University of Finance and Economics
Subject
General Social Sciences,General Arts and Humanities
Cited by
1 articles.
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