Abstract
We investigate the role of the liquidity of stocks traded by mutual funds on the performance of funds experiencing substantial and sustained redemptions (outflows) or inflows. Accordingly, we identify 770 redeeming fund-periods and 1,757 inflow fund-periods and find a statistically significant relation between the liquidity of the stocks they trade and the quantity of the stock traded. Notably, when funds experience redemptions, those with low portfolio liquidity have an elevated preference for selling more-liquid stocks. In the following period, such funds statistically and economically underperform funds that sell less-liquid stocks. This is consistent with redemptions detrimentally affecting shareholders that remain in a fund.
| Original language | English |
|---|---|
| Pages (from-to) | 515-532 |
| Number of pages | 18 |
| Journal | Journal of Financial Research |
| Volume | 30 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - Dec 2007 |