Liquidity and Flows of U.S. Mutual Funds
Sept. 17, 2015
Paul Hanouna, Jon Novak, Tim Riley, and Christof Stahel
We examine the U.S. mutual fund industry with particular attention paid to fund flows, the liquidity of fund portfolios, and the interaction of those characteristics. Mutual funds in investment categories that hold potentially less liquid assets are growing quickly and often have volatile flows. Alternative strategies have both highest average net flow and highest average net flow volatility of any investment category. Among many other empirical results, we show that the liquidity of the equity portfolio of U.S. equity funds is greater when flow volatility is greater and that the liquidity of those same portfolios decreases after large outflows.