Passive-Aggressive Trading: The Supply and Demand of Liquidity by Mutual Funds | Zendy

Susan Kerr Christoffersen | Zendy; Donald B. Keim | Zendy; David K. Musto | Zendy; Aleksandra Rzeźnik | Zendy

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Passive-Aggressive Trading: The Supply and Demand of Liquidity by Mutual Funds

Author(s) -

Susan Kerr Christoffersen,

Donald B. Keim,

David K. Musto,

Aleksandra Rzeźnik

Publication year - 2022

Publication title -

review of finance

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.933

H-Index - 61

eISSN - 1875-824X

pISSN - 1572-3097

DOI - 10.1093/rof/rfac008

Subject(s) - market liquidity , business , monetary economics , value (mathematics) , liquidity crisis , economics , finance , computer science , machine learning

Active mutual funds supply liquidity when demanding it becomes uneconomical. They tilt toward cheaper buy trades after inflows deplete their trading ideas, when trading ideas in general run low, and when they have more stocks to supply liquidity to, and their cheaper trades perform worse. Their largest trades are more likely to supply liquidity, explaining why they were not broken up. Funds perform better when they pay more for their buys and perform worse when they pay more for their sells, consistent with the implied value of the trades and the correlation between what a fund trades and what it holds.

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