Andy Koch
McCombs School of Business
University of Texas at Austin

Stefan Ruenzi
Chair of International Finance
University of Mannheim

Laura Starks
McCombs School of Business
University of Texas at Austin

Florian Weigert
Chair of International Finance
University of Mannheim

In this paper we investigate the influence of liquidity commonality and systematic fund flows on the investment strategy and performance of mutual funds. We hypothesize that in time periods of low (high) absolute fund netflows, funds - holding shares with high liquidity commonality - perform better (worse) than funds - holding shares with low liquidity commonality. If the netflows of a fund are only weakly correlated with netflows of other funds, we propose that an optimal strategy is to invest in shares with a high degree of liquidity commonality.

• Koch, A.; Ruenzi, S.; Starks, L.; Weigert, F. (2011). Liquidity Commonality, Systematic Fund Flows and Optimal Mutual Fund Behavior, Working Paper, UT Austin and University of Mannheim

Area: Finance

Software:

• Matlab, Stata

Links:

• http://intfin.bwl.uni-mannheim.de/31.html