Skilled active liquidity management: Evidence from shocks to fund flows

72 Pages Posted: 30 Aug 2021 Last revised: 6 Jul 2022

See all articles by Aleksandra Rzeźnik

Aleksandra Rzeźnik

York University - Schulich School of Business

Date Written: July 29, 2021


I study the active liquidity management of U.S. equity mutual funds in the face of unexpected and persistent investor withdrawals. To disentangle the inherent simultaneity arising from the joint determination of portfolio composition, performance, and flows, I rely on two distinct natural experiments. Examining the 2003 mutual fund scandal and the introduction of Morningstar Sustainability Ratings in March 2016, events which lead to sizeable outflows for affected funds, I document that fund managers use both equity and cash holdings to increase portfolio liquidity when subject to sudden, moderate, and prolonged outflows. For affected funds, those that more aggressively tilt their portfolios toward more liquid assets significantly outperform their less liquidity-focused peers. Moreover, the degree of liquidity management positively correlates with proxies for managerial skills found elsewhere in the literature. This suggests that active liquidity management is a device that skilled managers use to minimize the cost imposed by redemption obligations.

Keywords: equity mutual funds, liquidity management, managerial skills

Suggested Citation

Rzeźnik, Aleksandra, Skilled active liquidity management: Evidence from shocks to fund flows (July 29, 2021). Available at SSRN: or

Aleksandra Rzeźnik (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3

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

Paper statistics

Abstract Views
PlumX Metrics