Information Acquisition By Mutual Fund Investors: Evidence from Stock Trading Suspensions
Publication Date
11-1-2023
Abstract
Mutual funds create liquidity by issuing demandable equity claims against illiquid holdings. We study the informational effects of this liquidity creation by exploiting frequent trading suspensions in China. When a portfolio stock is suspended, its market liquidity vanishes, and the fund's reported valuation becomes stale, leaving the fund itself mispriced. We find that investors acquire information about suspended stocks held in fund portfolios and reallocate capital toward underpriced funds. This information is subsequently incorporated into stock prices once trading resumes. Our findings suggest that liquidity creation by nonbank financial intermediaries stimulates information acquisition about illiquid securities.
Document Type
Article
Keywords
Liquidity, Mutual Funds, Information Acquisition, Trading
Disciplines
Finance
Source
SMU Cox: Finance (Topic)
Language
English
