The liquidity timing ability of mutual funds

• Published in: The North American journal of economics and finance Vol. 74; p. 102201
• Main Authors: Yin, Zhengnan, O’Sullivan, Niall, Sherman, Meadhbh
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.09.2024
• Subjects: Liquidity; Liquidity timing; Mutual fund performance; Nonparametric test; Principal component analysis; Liquidity timing; Nonparametric test; G11; Liquidity; G12; G23; G14; Mutual fund performance; Principal component analysis
• ISSN: 1062-9408
• DOI: 10.1016/j.najef.2024.102201

•We apply the nonparametric method to study the liquidity timing ability of mutual funds in the US, UK and China.•We calculate the stock market liquidity from six stock liquidity measures during the period of January 2020 to June 2021.•We find a number of top funds have significant positive liquidity timing skills.•Large funds tend to be more successful at timing market liquidity.•Liquidity timing results are sensitive to specific liquidity measures. We apply the nonparametric methodology of Jiang (2003) to test the market liquidity timing skills across individual equity mutual funds in three countries (the US, UK, and China). We calculate the monthly stock market liquidity using simple averages (across stocks) as well as the asymptotic principal component analysis (APCA) method based on six stock liquidity measures. Using an across-measure of market liquidity from APCA, we find a relatively small number of funds demonstrate statistically positive liquidity timing skills at a 5% significance level for the period of 2000–2021. After controlling for lagged market liquidity information, we still find a small number of mutual funds that have conditional liquidity timing ability using the nonparametric method.