Liquidity transformation in asset management: Evidence from the cash holdings of mutual funds

Arbeitspapier

We study liquidity transformation in mutual funds using a novel data set on their cash holdings To provide investors with claims that are more liquid than the underlying assets, funds engage in substantial liquidity management. Specifically, they hold substantial amounts of cash, which they use to accommodate inflows and outflows rather than transacting in the underlying portfolio assets. This is particularly true for funds with illiquid assets and at times of low market liquidity. We provide evidence suggesting that mutual funds' cash holdings are not large enough to fully mitigate price impact externalities created by the liquidity transformation they engage in.

Object Details

• ISBN: 978-92-95081-53-6
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ESRB Working Paper Series ; No. 23

Classification and Topics

• Classification: Wirtschaft ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: liquidity transformation ; asset management ; mutual funds ; cash holdings ; fire sales

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chernenko, Sergey ; Sunderam, Adi
• Event: Veröffentlichung
• (who): European Systemic Risk Board (ESRB), European System of Financial Supervision
• (where): Frankfurt a. M.
• (when): 2016

Further information

• DOI: doi:10.2849/538978
• Handle: http://hdl.handle.net/10419/193530
• Last update: 10.03.2025, 11:43 AM CET