Liquidity provision and trading skill: evidence from mutual funds' daily transactions
- Examining risk-adjusted returns for executed trades over horizons of up to 1 year, we document strong evidence of short-term trading skill using daily mutual fund transactions from Finland. We find that trading performance is highly persistent up to the 1 month horizon, with an annualized Carhart abnormal return of 5.03% observed for both buys and sells. Moreover, the returns observed for the first week account for almost 36% of a fund's 1 year trade return, underscoring the significance of short-term trading in mutual funds. For the best-performing funds, this short-term performance also translates into sustained long-term outperformance. Investigating possible sources, we find that liquidity provision, rather than price pressure, is a significant contributor. In addition, short-term trading performance is significantly positively related to trade size, fund size, and expenses, depending on whether buys or sells are considered.
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| Author: | René WehGND, Peter Joakim Westerholm, Marco WilkensORCiDGND, Juan Yao |
|---|---|
| URN: | urn:nbn:de:bvb:384-opus4-1128546 |
| Frontdoor URL | https://opus.bibliothek.uni-augsburg.de/opus4/112854 |
| ISSN: | 1058-3300OPAC |
| ISSN: | 1873-5924OPAC |
| Parent Title (English): | Review of Financial Economics |
| Publisher: | Wiley |
| Type: | Article |
| Language: | English |
| Year of first Publication: | 2024 |
| Publishing Institution: | Universität Augsburg |
| Release Date: | 2024/05/08 |
| Volume: | 42 |
| Issue: | 2 |
| First Page: | 206 |
| Last Page: | 238 |
| DOI: | https://doi.org/10.1002/rfe.1196 |
| Institutes: | Wirtschaftswissenschaftliche Fakultät |
| Wirtschaftswissenschaftliche Fakultät / Institut für Betriebswirtschaftslehre | |
| Wirtschaftswissenschaftliche Fakultät / Institut für Betriebswirtschaftslehre / Lehrstuhl für Finanz- und Bankwirtschaft | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Licence (German): |  CC-BY-NC 4.0: Creative Commons: Namensnennung - Nicht kommerziell (mit Print on Demand) |
