Premium
The Determinants and Implications of Mutual Fund Cash Holdings: Theory and Evidence
Author(s) -
Yan Xuemin Sterling
Publication year - 2006
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2006.tb00142.x
Subject(s) - mutual fund , business , equity (law) , open end fund , closed end fund , operating cash flow , cash , monetary economics , fund of funds , cash flow , finance , financial economics , financial system , economics , institutional investor , market liquidity , corporate governance , political science , law
In this article, I examine the determinants and implications of equity mutual fund cash holdings. In cross‐sectional tests, I find evidence generally supportive of a static trade‐off model developed in the article. In particular, small‐cap funds and funds with more‐volatile fund flows hold more cash. However, I do not find that fund managers with better stock‐picking skills hold less cash. Aggregate cash holdings by equity mutual funds are persistent and positively related to lagged aggregate fund flows. Aggregate cash holdings do not forecast future market returns, suggesting that equity funds as a whole do not have market timing skills.