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Do mutual fund managers time market liquidity?

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  • Cao, Charles
  • Simin, Timothy T.
  • Wang, Ying
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    Abstract

    This paper examines mutual fund managers' ability to time market-wide liquidity. Using the CRSP mutual fund database, we find strong evidence that over the 1974–2009 period, mutual fund managers demonstrate the ability to time market liquidity at both the portfolio level and the individual fund level. Liquidity timing predicts future fund performance and the difference in the risk-adjusted returns between top and bottom liquidity-timing funds is approximately 2% per year. Funds exhibiting liquidity-timing ability tend to have longer histories, higher expense ratios, and higher turnover rates.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1386418112000456
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 16 (2013)
    Issue (Month): 2 ()
    Pages: 279-307

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    Handle: RePEc:eee:finmar:v:16:y:2013:i:2:p:279-307

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    Web page: http://www.elsevier.com/locate/finmar

    Related research

    Keywords: Liquidity timing; Mutual fund performance; Market liquidity; Bootstrap;

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    References

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    11. Busse, Jeffrey A, 1999. "Volatility Timing in Mutual Funds: Evidence from Daily Returns," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1009-41.
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    17. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
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