Abstract

http://ssrn.com/abstract=2107424
 
 

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Flight-to-Liquidity, Market Uncertainty, and the Actions of Mutual Fund Investors


Azi Ben-Rephael


Indiana University - Kelley School of Business - Department of Finance

March 28, 2014


Abstract:     
We explore institutional investor trading decisions during crisis periods and provide evidence that the flight-to-liquidity premium is at least partially driven by mutual fund flows. Mutual funds, on aggregate, reduce their holdings of illiquid stocks. This reduction is a result of larger withdrawals from funds that hold less liquid stocks, and not of fund manager strategic trading decisions. Fund managers are forced to trade, which in turn creates a direct selling pressure that contributes to the decline in illiquid stocks prices. These findings suggest a new and important link between the literature on the price impact of institutional flows and systematic liquidity pricing.

Number of Pages in PDF File: 74

Keywords: market uncertainty, financial crisis, liquidity, flight-to-liquidity, mutual funds, institutional investors, price pressure

JEL Classification: G01, G11, G12, G14, G20

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Date posted: July 16, 2012 ; Last revised: May 11, 2014

Suggested Citation

Ben-Rephael, Azi, Flight-to-Liquidity, Market Uncertainty, and the Actions of Mutual Fund Investors (March 28, 2014). Available at SSRN: http://ssrn.com/abstract=2107424 or http://dx.doi.org/10.2139/ssrn.2107424

Contact Information

Azi Ben-Rephael (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
HOME PAGE: http://www.kelley.iu.edu/finance/

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