Cash Holdings and the Performance of European Mutual Funds
14 Pages Posted: 18 Feb 2018 Last revised: 10 Aug 2018
Date Written: July 9, 2018
We investigate the determinants and performance implications of cash holdings for a large sample of actively-managed equity funds domiciled in the European Union (EU). In line with recent evidence from the US, we observe that cash holdings are strongly influenced by a fund's fee structure, past flows and flow volatility, and a fund's investment strategy. EU Funds with cash holdings in excess of the level predicted by fund attributes (i.e., high abnormal cash funds) earn higher risk-adjusted returns of 0.48% than their low abnormal cash peers over the subsequent six-months period. However, this outperformance disappears after 12 to 18 months.
Keywords: Cash Holdings, Mutual Funds, Performance Evaluation
JEL Classification: G10, G11, G15, G23
Suggested Citation: Suggested Citation