Essays on the Impact of Policy Uncertainty on the Financial Markets

Research output: ThesisDoctoral ThesisCollection of Articles


The thesis (Essays on the Impact of Policy Uncertainty on the Financial Markets) consists of three stand-alone research papers linked together under the common theme of policy uncertainty. Each essay analyzes the impact of policy uncertainty from a different perspective.
In Essay 1, I examine the dynamics of the corporate bond market over the FOMC cycle. My findings contribute to the developing literature in financial economics that documents the existence of macroeconomic news announcement effects beyond the day of the monetary policy announcement. Cieslak et al. (2019), for instance, report a biweekly pattern in the equity market observable over the 6- to 8-week FOMC cycle due to the FOMC-related announcements. I not only document a similar pattern for the weekly corporate bond returns, but also find that corporate bond liquidity reflects the behavior of the different bond traders in different stages of the FOMC cycle. I find that proximity to the FOMC announcement day (time-based uncertainty) has a significant impact on the weekly bond returns and liquidity. I also document that weekly corporate bond returns over the FOMC cycle reflect the existence of an illiquidity premium. I create a risk factor (proximity index) based on this proximity concept and show that it affects the cross-sectional bond returns.
In Essay 2, I contribute to the debate on the pricing of different kinds of political risk, by examining the significance of macro and firm-level (idiosyncratic) political risk measures within the same framework. I examine their implications not just for the asset returns and liquidity but also for the changes in institutional ownership and discretionary trades of mutual funds. I report that firm-level political risk has short-lived impact limited to a few days. The macro political risk, on the other hand is systematically priced in different return horizons and measurement frequencies.
In Essay 3, I contribute to the burgeoning literature, which investigates the determinants of investor flows to mutual funds. I specifically examine the consistency of mutual funds in producing a positive risk-adjusted return around the uncertainty generating FOMC announcement days (the FOMC alpha consistency). Analyzing the reaction of mutual funds to uncertainty due to the FOMC announcements is quite a novel perspective to the mutual fund literature and it yields interesting results. For example, I report that the funds’ FOMC alpha consistency is linked to their portfolio holdings and to the Morningstar star ratings. Based on my extensive analyses in Essay 3, I make a pioneering contribution to the intersection of literature on policy uncertainty and mutual fund performance evaluation, i.e., on how alpha consistency around uncertain economic events affects the future flow dynamics.
Original languageEnglish
QualificationDoctor of Philosophy
  • Colak, Gonul, Degree supervisor
  • Löflund, Anders, Thesis supervisor
Award date05.12.2023
Place of PublicationHelsinki
Print ISBNs978-952-232-512-9
Electronic ISBNs978-952-232-513-6
Publication statusPublished - 2023
MoE publication typeG5 Doctoral dissertation (article)


  • 512 Business and Management
  • Monetary Policy Uncertainty
  • Political Uncertainty
  • Asset Returns
  • Corporate Bond Market
  • Mutual Fund Flows
  • Federal Open Market Committee Announcements
  • Flow-Driven Trading
  • Institutional Holdings


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