Holding cash for the better decision? A comparison study of the liquidity management between China and US mutual funds

You Zhou
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You Zhou: Leeds University Business School, University of Leeds

A chapter in Proceedings of the 2023 International Conference on Finance, Trade and Business Management (FTBM 2023), 2023, pp 75-93 from Springer

Abstract: Abstract This paper comparatively studies the different implications of the fund cash holding for fund strategies, flows and performance between China and the US. I use the R-square decomposition technique to examine the determinants of cash holdings. I find that funds in China show more concerns on the non-risk factor than the risk factor in determining the cash level, while US funds show more concerns on risk factors. Funds in the US tend to title their portfolio to lower risk loading and reduce the systematic risk than the funds in China. The abnormal cash holdings can attract money flows in both these two markets. It positively predicts performance in the US and the predictive power is enhanced by the smart money effect. The paper suggests that abnormal cash holding is an essential perspective to be considered in investors’ fund decisions.

Keywords: Cash holdings; Risk factors; Mutual fund performance; Fund flows (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-298-9_9

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DOI: 10.2991/978-94-6463-298-9_9

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