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Mutual Funds and the Market for Liquidity

47 Pages Posted: 9 Apr 2005  

Ludovic Phalippou

University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance

Massimo Massa

INSEAD - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 2005

Abstract

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). EFA 2005 Moscow Meetings Paper. Available at SSRN: https://ssrn.com/abstract=609883 or http://dx.doi.org/10.2139/ssrn.609883

Ludovic Phalippou (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

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