Report
Navigating Geoeconomic Risk: Evidence from U.S. Mutual Funds
Abstract: How do investors perceive and navigate the emerging geoeconomic risk? We identify firm-level geoeconomic risk using supply-chain links to Chinese firms targeted by U.S. export controls. Affected U.S. suppliers experience negative abnormal returns around policy announcements. These shocks propagate to mutual funds through portfolio holdings, raising volatility and lowering performance. Fund managers respond by reducing exposure to China-linked exporters, increasing portfolio concentration, and buying more lottery-like stocks. A long–short portfolio based on geoeconomic risk exposure earns positive and significant future returns, suggesting investors demand compensation for bearing the high geoeconomic risk.
JEL Classification: F38; F51; G12;
https://doi.org/10.59576/sr.1172
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 2025-11-01
Number: 1172
Note: Revised April 2026.