Cross-trading and liquidity management: Evidence from municipal bond funds

The high flow-performance sensitivity of open-end municipal bond funds motivates fund managers to actively manage funding liquidity risk and reduce the costs flow-driven transactions. We show that families use closed-end provide distressed by coordinating cross-trading through internal markets. Larger national funds, with lower cash holdings, more flexible agency policies engage in liquidity-driven cross-trading. Such improves performance receiving provision. Consistent cross-fund subsidization family-value maximization, tend low-value for management.