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.
Original language | English (US) |
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Article number | 2050018 |
Journal | Quarterly Journal of Finance |
Volume | 10 |
Issue number | 4 |
Early online date | Oct 28 2020 |
DOIs | |
State | Published - Dec 2020 |
Externally published | Yes |
Keywords
- Mutual funds
- expected volatility
- liquidity preferences
- performance
ASJC Scopus subject areas
- Finance
- Economics and Econometrics
- Strategy and Management