Information Acquisition By Mutual Fund Investors: Evidence from Stock Trading Suspensions

Clemens Sialm and David X. Xu

No 34520, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Mutual funds create liquidity for investors by issuing demandable equity shares while holding illiquid securities. We study the implications of this liquidity creation by examining frequent trading suspensions in China, which temporarily eliminate market liquidity in affected stocks. These suspensions cause significant mispricing of mutual funds due to inaccurate valuations of their illiquid holdings. We find that investors actively acquire information about suspended stocks held by mutual funds, driving flows into underpriced funds. This information is subsequently incorporated into stock prices when trading resumes. Our findings suggest that mutual fund liquidity creation stimulates information acquisition about illiquid, information-sensitive assets.

JEL-codes: G11 G12 G14 G15 G23 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-cna, nep-fmk, nep-ifn and nep-mst
Note: AP CF
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