Mutual Fund Liquidity and Fiduciary Conflicts of Interest

Forthcoming, Journal of Applied Finance

24 Pages Posted: 8 Jun 2013

See all articles by Miles Livingston

Miles Livingston

University of Florida - Department of Finance, Insurance and Real Estate

David A. Rakowski

University of Texas at Arlington - Department of Finance and Real Estate

Multiple version iconThere are 3 versions of this paper

Date Written: June 6, 2013

Abstract

Open-end mutual funds allow purchases and redemptions of shares daily at the closing net asset value. This practice imposes costs upon the mutual fund for portfolio adjustments and maintaining cash balances to handle inflows and redemptions. The cost of providing liquidity falls disproportionately on nontrading investors. This paper proposes charging fees for purchasing mutual fund shares and for redeeming mutual fund shares. The fees collected will become part of the assets of the fund and compensate nontrading investors for providing liquidity. This procedure reduces the incentives for the use of mutual funds as short-term trading vehicles.

Keywords: Mutual Funds, Fiduciary Conflicts of Interests

JEL Classification: G12, G23

Suggested Citation

Livingston, Miles B. and Rakowski, David A., Mutual Fund Liquidity and Fiduciary Conflicts of Interest (June 6, 2013). Forthcoming, Journal of Applied Finance, Available at SSRN: https://ssrn.com/abstract=2275401

Miles B. Livingston (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainsville, FL 32611-7168
United States
352-392-4316 (Phone)
352-392-0301 (Fax)

David A. Rakowski

University of Texas at Arlington - Department of Finance and Real Estate ( email )

701 S. West St., Ste. 434
University of Texas at Arlington
Arlington, TX TX 76010
United States
817-272-3705 (Phone)

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