Impact of bank-affiliation on liquidity seeking of foreign mutual funds during adverse shocks: Evidence from China

Jinhua Zhang, Rui Mao, John W. Goodell, Anna Min Du and Yimin Xu

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: Using daily shareholding data and event-based measures of composite shocks, we investigate the liquidity-seeking behavior of foreign mutual funds in China that are affiliated with commercial banks, comparing it with the behavior of unaffiliated foreign mutual funds. Fixed effect and panel structural VAR models both reveal differential responses between affiliated and unaffiliated foreign mutual funds. While both types of mutual funds seek liquidity by withdrawing from illiquid, volatile and growth-oriented stocks facing negative shocks, unaffiliated mutual funds exhibit a higher degree of liquidity seeking, consistent with the results of bank-affiliated funds providing liquidity stability. This finding is robust to the selection of shock periods and measurements. The evidence shed new lights on the liquidity management of open-end foreign mutual funds in emerging markets.

Keywords: Foreign mutual funds; Liquidity; Adverse shocks; International events; Bank affiliation; Trading behavior (search for similar items in EconPapers)
JEL-codes: G11 G15 G18 G23 G28 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006112

DOI: 10.1016/j.irfa.2024.103679

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