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

Central Michigan University - Department of Finance and Law; University of Texas at Arlington

Anh Tuan Nguyen

RMIT University - RMIT Vietnam

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

Central Michigan University - Department of Finance and Law ( email )

Mount Pleasant, MI 48859
United States

University of Texas at Arlington ( email )

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

Anh Tuan Nguyen

RMIT University - RMIT Vietnam ( email )

Vietnam

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

Paper statistics

Downloads
78
Abstract Views
487
Rank
488,789
PlumX Metrics