Do Mutual Fund Managers Time Market Liquidity?

43 Pages Posted: 3 Jul 2009 Last revised: 3 Oct 2013

See all articles by Charles Cao

Charles Cao

Pennsylvania State University

Timothy T. Simin

Pennsylvania State University

Ying Wang

State University of New York at Albany - School of Business

Date Written: June 1, 2010

Abstract

Extant research has focused on mutual fund managers’ ability to time market returns or volatility. In this paper, we offer a new perspective on the traditional timing issue by examining fund managers’ ability to time market wide liquidity. Using the CRSP mutual fund database, we find strong evidence that over the 1974 to 2009 period, mutual fund managers demonstrate the ability to time market liquidity at both the portfolio level and the individual fund level. Liquidity timing predicts future fund performance and the difference in the risk-adjusted returns between top and bottom liquidity timing funds is approximately 2% per year. Funds exhibiting liquidity timing ability tend to have longer histories, higher expense ratios, and higher turnover rates.

Keywords: Liquidity timing, mutual fund performance, market liquidity, bootstrap

JEL Classification: G10, G11, G19, G29

Suggested Citation

Cao, Charles and Simin, Timothy T. and Wang, Ying, Do Mutual Fund Managers Time Market Liquidity? (June 1, 2010). Journal of Financial Markets, Vol. 16, Iss. 2, Pg 279–307, 2013, Available at SSRN: https://ssrn.com/abstract=1427382 or http://dx.doi.org/10.2139/ssrn.1427382

Charles Cao

Pennsylvania State University ( email )

Department of Finance
Smeal College of Business
University Park, PA 16802
United States
814-865-7891 (Phone)
814-865-3362 (Fax)

HOME PAGE: http://www.personal.psu.edu/qxc2/cao.html

Timothy T. Simin

Pennsylvania State University ( email )

University Park, PA 16802
United States
814-865-3457 (Phone)

HOME PAGE: http://timsimin.net

Ying Wang (Contact Author)

State University of New York at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

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