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Do mutual fund managers time market liquidity?

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  • Cao, Charles
  • Simin, Timothy T.
  • Wang, Ying

Abstract

This paper examines mutual fund managers' ability to time market-wide liquidity. Using the CRSP mutual fund database, we find strong evidence that over the 1974–2009 period, mutual fund managers demonstrate the ability to time market liquidity at both the portfolio level and the individual fund level. Liquidity timing predicts future fund performance and the difference in the risk-adjusted returns between top and bottom liquidity-timing funds is approximately 2% per year. Funds exhibiting liquidity-timing ability tend to have longer histories, higher expense ratios, and higher turnover rates.

Suggested Citation

  • Cao, Charles & Simin, Timothy T. & Wang, Ying, 2013. "Do mutual fund managers time market liquidity?," Journal of Financial Markets, Elsevier, vol. 16(2), pages 279-307.
    • Handle: RePEc:eee:finmar:v:16:y:2013:i:2:p:279-307
    DOI: 10.1016/j.finmar.2012.10.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Liquidity timing; Mutual fund performance; Market liquidity; Bootstrap;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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