Information Acquisition By Mutual Fund Investors: Evidence from Stock Trading Suspensions
Publication Date
11-1-2024
Abstract
We study the impact of liquidity on investors' information acquisition by examining frequent trading suspensions in China. These suspensions render stocks illiquid, causing significant mispricing of mutual funds because the prices of fund shares are not adequately adjusted for valuation changes of the suspended holdings. We find that the liquidity created by mutual funds' demandable shares motivates investors to acquire firm-specific information about these illiquid holdings. This acquired information drives flows into underpriced funds and is then incorporated into stock prices when trading resumes. Our findings suggest that liquidity creation by mutual funds increases the amount of information about their illiquid holdings.
Document Type
Article
Disciplines
Finance
DOI
10.2139/ssrn.5047094
Source
SMU Cox: Finance (Topic)
Language
English
