Dynamic Liquidity and Mutual Fund Performance

Journal of Investing (JOI), Forthcoming

https://doi.org/10.3905/joi.2017.26.3.077

Posted: 21 May 2019

See all articles by Qiang Bu

Qiang Bu

Penn State Harrisburg - School of Business Administration

Nelson Lacey

University of Massachusetts at Amherst

Date Written: March 16, 2016

Abstract

This paper introduces a new measure of liquidity for equity mutual funds. Our measure, called dynamic liquidity, is a combination of a fund’s money flow and its volatility around money flow. We show that a fund’s dynamic liquidity score (DLS) is an improved indicator of fund liquidity and can be used as a signal of performance. For example, in a volatile market, a high DLS is associated with higher fund return, whereas in a stable market, DLS is negatively associated with fund return. Overall the impact of dynamic liquidity on fund performance is short-term and time-varying.

Keywords: Dynamic liquidity score (DLS), net money flows, market volatility, fund performance

JEL Classification: G11, G14

Suggested Citation

Bu, Qiang and Lacey, Nelson J., Dynamic Liquidity and Mutual Fund Performance (March 16, 2016). Journal of Investing (JOI), Forthcoming, https://doi.org/10.3905/joi.2017.26.3.077, Available at SSRN: https://ssrn.com/abstract=2748729 or http://dx.doi.org/10.2139/ssrn.2748729

Qiang Bu (Contact Author)

Penn State Harrisburg - School of Business Administration ( email )

777 W. Harrisburg Pike
Middletown, PA 17057
United States
717-948-6164 (Phone)

Nelson J. Lacey

University of Massachusetts at Amherst ( email )

School of Management
Amherst, MA 01003
United States
413-545-5630 (Phone)
413-545-3858 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
902
PlumX Metrics