Informed Trading, Liquidity Provision, and Stock Selection by Mutual Funds

Impatient Trading, Liquidity Provision, and Stock Selection by Mutual Funds

We show that a mutual fund’s stock selection skill can be decomposed into additional components that include liquidity-absorbing impatient trading and liquidity provision. We find that past performance predicts future performance better among funds trading in stocks affected more by information events: Past winners earn a risk-adjusted after-fee excess return of 35 basis points per month in the...

Online Appendix to Impatient Trading, Liquidity Provision, and Stock Selection by Mutual Funds

Impatient Trading, Liquidity Provision, and Stock Selection by Mutual Funds Online Appendix

Mutual fund competition and stock market liquidity

We study how competition in the mutual fund industry affects the stock market and its liquidity. We argue that mutual fund families operate as multi-product firms, jointly choosing fees, performance and number of funds. We show that competition between fund families distorts the incentives to collect information and induces the families to trade off performance and number of funds. An increase ...

Securities Trading when Liquidity Providers are Informed

Securities Trading when Liquidity Providers are Informed Abstract We study securities trading when liquidity is provided by informed agents—either because dealers have superior access to market information or because informed traders exploit strategies involving limit orders. In the case of informed dealers, we show that dealers and informed traders profit more at the expense of uninformed liqu...