Skilled Active Liquidity Management – A Natural Experiment

48 Pages Posted: 30 Aug 2021

See all articles by Aleksandra Rzeźnik

Aleksandra Rzeźnik

York University, Schulich School of Business

Date Written: July 29, 2021

Abstract

I study the active liquidity management of equity mutual funds in US. First, I show that mutual funds actively increase the liquidity of their portfolio in response to a negative and exogenous shock to investor flows. I document that fund managers use both equity and cash holdings to adjust their portfolio's liquidity when subject to sudden and unexpected withdrawals. Second, I argue that active liquidity management is an effective device that skilled managers use to minimize the cost imposed by redemption obligations. I find that funds that actively manage their liquidity to a greater degree outperform their less liquidity focused peers by up to 4.92% per year.

Suggested Citation

Rzeźnik, Aleksandra, Skilled Active Liquidity Management – A Natural Experiment (July 29, 2021). Available at SSRN: https://ssrn.com/abstract=3895698 or http://dx.doi.org/10.2139/ssrn.3895698

Aleksandra Rzeźnik (Contact Author)

York University, Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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