Mutual Fund Liquidity Costs

Forthcoming Financial Management

34 Pages Posted: 19 Apr 2015 Last revised: 19 Aug 2016

Jon A. Fulkerson

University of Dayton

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: August 18, 2016

Abstract

One dollar in purchases or redemptions generates an average cost of $0.006 for U.S. equity mutual funds during the period 1997-2009, approximately 70% lower than prior estimates derived from older data. However, large cross-sectional differences exist between funds. Many funds have costs near zero, but funds that hold relatively illiquid equities, have relatively concentrated portfolios, and manage relatively large amounts of assets have average liquidity costs significantly greater than the full sample average. Furthermore, despite a large difference in underlying asset liquidity, U.S. bond funds and U.S. equity funds have similar average liquidity costs.

Keywords: mutual funds, liquidity

JEL Classification: G11, G20

Suggested Citation

Fulkerson, Jon A. and Riley, Timothy B., Mutual Fund Liquidity Costs (August 18, 2016). Forthcoming Financial Management. Available at SSRN: https://ssrn.com/abstract=2595783 or http://dx.doi.org/10.2139/ssrn.2595783

Jon A. Fulkerson (Contact Author)

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

Timothy Brandon Riley

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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