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Mutual fund redemptions: Liquidity preferences in fund asset sales

Gasbarro, D. and Cullen, G. (2004) Mutual fund redemptions: Liquidity preferences in fund asset sales. In: 17th Australasian Finance and Banking Conference (AFBC), 15 - 17 December, Sydney, Australia pp. 1-29.

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This study investigates whether mutual funds that experience redemptions preferentially sell their more-liquid stocks. Investors that remain in such funds may inherit portfolios of less-liquid stocks, with an associated transfer of wealth to redeemers. Using 626 mutual fund-periods between 1995 and 1999 we observe that funds do indeed have a systematic preference for selling their more-liquid stocks when they experience redemptions. Our findings question the efficacy of a buy-and-hold strategy where investors could be disadvantaged by managers preferentially selling their more-liquid assets.

Item Type: Conference Paper
Murdoch Affiliation: Murdoch Business School
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