Mutual Funds and the Market for Liquidity

47 Pages Posted: 9 Apr 2005

See all articles by Ludovic Phalippou

Ludovic Phalippou

University of Oxford - Said Business School

Massimo Massa

INSEAD - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 2005


Using a large sample of US active equity mutual funds from 1983 to 2001, we show that portfolio liquidity is actively managed and chosen as a function of the multiple liquidity needs a fund has. Using portfolio liquidity as a parsimonious proxy for the severity of liquidity needs, we find that fund performance is independent of liquidity needs. We also find that unpredictable changes in market liquidity and short-term deviations from optimal liquidity level affect performance. These results are consistent with the view that liquidity impacts portfolio choice and that the provision of capital to mutual funds is competitive and optimal.

Keywords: Mutual funds, liquidity

JEL Classification: G11, G12, G14

Suggested Citation

Phalippou, Ludovic and Massa, Massimo, Mutual Funds and the Market for Liquidity (May 2005). Available at SSRN: or

Ludovic Phalippou (Contact Author)

University of Oxford - Said Business School ( email )

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Great Britain

Massimo Massa

INSEAD - Finance ( email )

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F-77305 Fontainebleau Cedex
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

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