“Monetary surprises” and Excess Return of the U. S. Mutual Funds

   The purpose of this paper is to conduct statistical tests to verify the impact of unexpected monetary policy shocks on the U.S. mutual funds returns over the period from December 2007 to February 2022.

   The authors have identified the “monetary surprises” of monetary policy shocks for the period under consideration using a high-frequency identification procedure and analyzed the Fed’s monetary policy at the current stage. The model, in which excess fund return is a dependent variable, has been designed basing on the panel data on the characteristics of 457 actively managed funds with S&P 500 as a benchmark downloaded from the Bloomberg terminal. The main hypothesis about the significance of “monetary surprises” for actively managed funds performance has been confirmed for the periods 2007–2009 and 2020, when the U.S. economy was in a recession. The robustness has been tested on the models with several specifications. The authors have concluded that not only absolute but also relative returns depend on unexpected changes in monetary policy, while an accurate analysis of their direction allows fund managers to increase the alpha of their portfolio significantly. In view of the above, assessing the quality of managing the financial portfolio in order to select a mutual fund to invest in requires considering the fund manager’s track record over the entire economic cycle.

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