Liquidity Timing in the Higher Moment Framework: Evidence from Bank Affiliated Fund
47 Pages Posted: 20 Aug 2016
Date Written: June 25, 2016
A non-normal stock return distribution is common in emerging markets. We propose a new liquidity timing model in a higher moment. Overall, fund managers are able to time the market-wide liquidity even in a higher moment environment. A co-skewness risk factor is statistically priced. High performing portfolios possess significantly positive liquidity timing ability, while low performing portfolios show oppositely. Thus, high performing funds increase (decrease) the funds' exposure to the market during a high (low) market liquidity period, while low performing funds wrongly forecast market liquidity. Moreover, only bank-related mutual funds possess the liquidity timing ability, supporting the information advantage hypothesis.
Keywords: liquidity timing, mutual fund performance, timing ability, bank-related mutual fund, higher moment liquidity timing
JEL Classification: G11, G12, G21, G23
Suggested Citation: Suggested Citation