Liquidity Picking and Fund Performance

71 Pages Posted: 20 Jul 2020 Last revised: 31 Oct 2022

See all articles by Feng Jiao

Feng Jiao

University of Lethbridge - Dhillon School of Business

Sergei Sarkissian

McGill University; University of Edinburgh

David Schumacher

McGill University

Date Written: October 25, 2022

Abstract

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

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

Feng Jiao

University of Lethbridge - Dhillon School of Business ( email )

4401 University Drive
Lethridge, Alberta T1K 3M4
Canada

Sergei Sarkissian (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)

HOME PAGE: http://sergei-sarkissian.com

University of Edinburgh

29 Buccleuch Pl.
Edinburgh, Scotland EH8 9JS
United Kingdom

David Schumacher

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
5143984778 (Phone)

HOME PAGE: http://www.davidschumacher.info

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