The Information and Liquidity Effects of Mutual Fund Flows: Evidence From International Spillovers

26 Pages Posted: 18 Feb 2021

See all articles by David A. Rakowski

David A. Rakowski

University of Texas at Arlington

John David Diltz

University of Texas at Arlington

Anh Tuan Nguyen

University of Texas at Arlington

Date Written: August 28, 2020

Abstract

We decompose mutual fund flow–driven price pressure into liquidity and information components by measuring the extent to which mutual fund flow-driven trading spills over from the United States (US) to 44 international markets. Our procedure shows that liquidity barriers are greater than information barriers between markets, in that non-US stock returns are more strongly associated with US stock returns than with US-based mutual fund price pressure. By using suitably flow-adjusted non-US returns of cross-listed stocks as instruments for US stock returns in the absence of mutual fund price pressure, our procedure shows that mutual fund flow-driven price pressure varies considerably across different markets, stocks, funds, and types of flows. A simple characterization of some mutual fund flows as “fire sales” fails to capture many sources of variation in the relative proportion of information and liquidity components of fund flows.

Keywords: price pressure, mutual fund fire sales, cross-listing, mutual fund performance, liquidity spillovers

JEL Classification: G23, G15, F21, F02

Suggested Citation

Rakowski, David A. and Diltz, John David and Nguyen, Anh Tuan, The Information and Liquidity Effects of Mutual Fund Flows: Evidence From International Spillovers (August 28, 2020). Available at SSRN: https://ssrn.com/abstract=3682833 or http://dx.doi.org/10.2139/ssrn.3682833

David A. Rakowski (Contact Author)

University of Texas at Arlington ( email )

Box 19449 UTA
Arlington, TX 76019
United States

John David Diltz

University of Texas at Arlington ( email )

Box 19449
Arlington, TX 76013
United States
817-272-3837 (Phone)

Anh Tuan Nguyen

University of Texas at Arlington ( email )

701 S Nedderman Dr
Arlington, TX 76019
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
30
Abstract Views
208
PlumX Metrics