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Mutual Funds and the Market for Liquidity

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Author Info
Massa, Massimo
Phalippou, Ludovic

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Abstract

We study how actively managed equity mutual funds select the liquidity level of their equity portfolio and the effects of this selection on performance. We provide evidence of five key determinants of portfolio liquidity: portfolio size, portfolio concentration, the manager’s trading frequency, investment style, and fee structure. We also show that liquidity is a persistent characteristic, but it is nevertheless dynamically managed so as to offset both exogenous liquidity shocks and changes in portfolio characteristics. Liquid funds are seen to strongly overperform (underperform) during illiquid (liquid) times but, on average, net performance is unaffected by liquidity.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4818.

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Date of creation: Dec 2004
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Handle: RePEc:cpr:ceprdp:4818

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Related research
Keywords: liquidity; mutual funds;

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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This page was last updated on 2009-11-25.

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