Short-term reversals, returns to liquidity provision and the costs of immediacy*

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Journal Title
Journal ISSN
Volume Title
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
Date
2022-05
Major/Subject
Mcode
Degree programme
Language
en
Pages
Series
JOURNAL OF BANKING AND FINANCE, Volume 138
Abstract
Some mutual funds act as contrarian traders, earning returns in the stock market by providing liquidity, while others demand liquidity and suffer costs of immediacy. The funds’ liquidity demand has increased over time. On average, the mutual funds’ costs of immediacy exceed their returns from providing liquidity by 1.9% pa. High market beta funds, large cap funds, and funds exposed to momentum suffer over 2,5% pa. in costs of immediacy. Other results are that mutual funds’ average alpha becomes insignificant when the costs of immediacy are accounted for and in the cross-section, the funds’ costs of immediacy predict their alphas.
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Keywords
mutual fund, liquidity, immediacy, fund flow, investment strategy
Other note
Citation
Ignashkina , A , Rinne , K & Suominen , M 2022 , ' Short-term reversals, returns to liquidity provision and the costs of immediacy* ' , JOURNAL OF BANKING AND FINANCE , vol. 138 , 106430 . https://doi.org/10.1016/j.jbankfin.2022.106430