Skilled active liquidity management: Evidence from shocks to fund flows

Aleksandra Rzeźnik

Journal of Empirical Finance, 2025, vol. 81, issue C

Abstract: I examine the active liquidity management of U.S. equity mutual funds facing unexpected, persistent investor withdrawals by exploiting two independent shocks: the 2003 mutual fund scandal and the 2016 introduction of Morningstar Sustainability Ratings. I document that fund managers increase portfolio liquidity by adjusting both equity and cash holdings when subject to sudden, moderate, and prolonged outflows. Among affected funds, those that more aggressively increase portfolio liquidity significantly outperform their less liquidity-focused peers, suggesting that skilled managers employ active liquidity management to minimize costs imposed by redemption obligations.

Keywords: Equity mutual funds; Liquidity management; Managerial skills (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:81:y:2025:i:c:s0927539825000015

DOI: 10.1016/j.jempfin.2025.101579

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