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Do mutual fund managers time market liquidity?

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

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.

Suggested Citation

  • Cao, Charles & Simin, Timothy T. & Wang, Ying, 2013. "Do mutual fund managers time market liquidity?," Journal of Financial Markets, Elsevier, vol. 16(2), pages 279-307.
  • Handle: RePEc:eee:finmar:v:16:y:2013:i:2:p:279-307
    DOI: 10.1016/j.finmar.2012.10.004
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    References listed on IDEAS

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    1. Acharya, Viral V. & Pedersen, Lasse Heje, 2005. "Asset pricing with liquidity risk," Journal of Financial Economics, Elsevier, vol. 77(2), pages 375-410, August.
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    Cited by:

    1. repec:eee:riibaf:v:42:y:2017:i:c:p:1355-1366 is not listed on IDEAS
    2. Tchamyou, Vanessa S. & Asongu, Simplice A., 2017. "Conditional market timing in the mutual fund industry," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1355-1366.
    3. repec:eee:pacfin:v:44:y:2017:i:c:p:80-96 is not listed on IDEAS
    4. repec:eee:jbfina:v:87:y:2018:i:c:p:427-445 is not listed on IDEAS
    5. Cao, Charles & Petrasek, Lubomir, 2014. "Liquidity risk in stock returns: An event-study perspective," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 72-83.
    6. repec:eee:pacfin:v:47:y:2018:i:c:p:1-19 is not listed on IDEAS
    7. Vanessa Tchamyou & Simplice Asongu & Jacinta Nwachukwu, 2018. "Effects of asymmetric information on market timing in the mutual fund industry," Working Papers 18/007, African Governance and Development Institute..

    More about this item

    Keywords

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

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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