Traders work on the floor of the New York Stock exchange during morning trading on November 10, 2023 in New York City. LEHTIKUVA / AFP

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In a recent doctoral thesis titled "Essays on the Impact of Policy Uncertainty on the Financial Markets," Ali Malik explores the profound influence of policy-maker actions and associated uncertainties on global financial markets. The study provides critical insights into how policy decisions, particularly those related to monetary and fiscal policies, significantly impact asset prices and trading behaviors.

Malik's research specifically examines the dynamics in the corporate bond market and the trading activities of institutional investors and mutual funds in relation to policy uncertainty. One key finding is the substantial effect of the Federal Open Market Committee (FOMC) announcements on corporate bond market dynamics. The proximity of FOMC cycle weeks to announcement days plays a crucial role, as institutional investors time their trades based on these cycles. Moreover, the uncertainty and announcements related to the FOMC create predictable patterns in weekly bond return dynamics.

"I discovered that uncertainty surrounding national-level policy decisions, like monetary and fiscal policies, has a lasting and significant impact on the trades and returns of financial assets," Malik states.

An innovative aspect of Malik’s thesis is the evaluation of mutual fund managers' performance amidst monetary policy announcement uncertainties. This approach provides a novel perspective on mutual fund managers' ability to achieve above-average returns during times of policy uncertainty.

Malik further explains, "My research is pioneering in its approach to measuring how consistency around uncertain economic events affects investor capital allocation. It offers a fresh lens on understanding the influence of policy uncertainty in financial decision-making."

This thesis sheds light on the intricate relationship between policy-making and financial market behavior, highlighting the need for investors and fund managers to closely monitor policy developments and adapt their strategies accordingly. Malik's work contributes significantly to the understanding of market dynamics in the context of policy uncertainties, offering valuable insights for investors, financial professionals, and policy-makers alike.

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