Liquidity Picking and Fund Performance

Using global mutual fund and American Depositary Receipt (ADR) data, we test if funds strategically trade cross-listed firms’ equity shares in the most liquid location. We find that especially funds that score high on traditional skill measures exhibit a liquidity-based trading venue preference. We identify an informed trading motive as the most likely driver for such behaviour rather than preference based on geographic, economic, cultural, or governance motives. Thus, liquidity picking is associated with fund outperformance and stock selection ability that is not limited to only cross-listed firms. Our tests directly support the theories of informed trading in a multi-market setting.

Keywords: Informed trading, Liquidity management, Investment skill, Cross-listings

JEL Classification: G15, G23

Suggested Citation: Suggested Citation

Jiao, Feng and Sarkissian, Sergei and Schumacher, David, Liquidity Picking and Fund Performance (October 25, 2024). Available at SSRN: https://ssrn.com/abstract=3651339 or http://dx.doi.org/10.2139/ssrn.3651339