Liquidity Picking and Fund Performance

Using global mutual fund and ADR data, we test if funds strategically trade cross-listed firms’
equity in the most liquid location – the United States or the stock’s domestic market. Funds
conducting such security liquidity picking (SLP) outperform. This result is robust to various
return and holdings-based performance tests, is driven by superior stock-picking ability even
of non-cross-listed stocks rather than transaction costs minimization, and is stronger for high
active share funds. Consistent liquidity picking mitigates funds’ capacity constraints creating
$11.6 million in value-added per year. Our tests directly support the theories of informed
trading in a multi-market setting.

Keywords: Fund holdings, Liquidity management, Performance persistence, Stock selection

JEL Classification: G15, G23

Suggested Citation: Suggested Citation

Jiao, Feng and Sarkissian, Sergei and Schumacher, David, Liquidity Picking and Fund Performance (October 25, 2022). Available at SSRN: https://ssrn.com/abstract=3651339 or http://dx.doi.org/10.2139/ssrn.3651339