This dissertation is a comprehensive study on mutual fund flows and the portfolio liquidity of mutual funds. The dissertation is organized into three chapters. In the first chapter, I consider the problem of aligning the incentives between the mutual fund investor and the mutual fund manager. I show that the investor reduces the overall risk of the portfolio by threatening to lower the allocation of future wealth to the mutual fund manager. The model predicts that the flow-performance relationship is sensitive to the riskiness of the funds, the riskiness of the underlying asset, and the fee structure of the fund. In the second chapter, I perform an empirical analysis on mutual fund flows. The objective of the study is to improve the understanding of the sensitivity of future mutual fund flows to past fund performance, in particular, how individual fund characteristics influence the mutual fund flow-performance relationship. I test the empirical predictions of the model presented in Chapter 1 and find supporting evidence that the flow-performance relationship is sensitive to the load fees of the mutual fund. In the third chapter, I study the implication of liquidity on fund portfolio management. I focus on two types of liquidity events specific to mutual funds: events of extreme anticipated fund flow and events of extreme unanticipated fund flow. I show that mutual fund managers, in anticipation of high expected outflow, increase the fund portfolio liquidity to avoid the forced sale of assets. Moreover, fund managers optimize their portfolios to reduce the trading cost of illiquid assets during unexpected bad times.

Last modified

• 06/27/2018

Creator

• Grace Koo

DOI

• https://doi.org/10.21985/N2T40B

Subject

• Finance

Keyword

• Mutual Fund Flows
• Mutual Funds
• Liquidity

Date created

• 2007-05-14

Resource type

• Dissertation

Rights statement

• In Copyright