Dynamic Liquidity Preferences of Mutual Funds

Jiekun Huang

Quarterly Journal of Finance (QJF), 2020, vol. 10, issue 04, 1-44

Abstract: This paper examines the relation between expected market volatility and open-end mutual funds’ liquidity preferences. Using a large panel of actively managed U.S. equity mutual funds, I show that mutual fund managers hold more cash and tilt their holdings more heavily towards liquid stocks during periods when expected market volatility is high. Cross-sectional tests suggest that the dynamic preferences for liquidity are driven by concerns over investor withdrawals during volatile times. Furthermore, I find evidence that this type of dynamic behavior leads to higher fund returns.

Keywords: Mutual funds; liquidity preferences; expected volatility; performance (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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DOI: 10.1142/S2010139220500184

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