Information Acquisition By Mutual Fund Investors: Evidence from Stock Trading Suspensions

Authors

Clemens Sialm, University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)Follow
David X Xu, Southern Methodist University (SMU) - Finance DepartmentFollow

Publication Date

11-1-2024

Abstract

We study mutual fund liquidity creation and its impact on 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 show that the liquidity created by demandable fund shares attracts investors to acquire information about illiquid stocks in mutual fund portfolios. This acquired information drives flows into underpriced funds and is subsequently incorporated into stock prices when trading resumes. Our findings suggest that nonbank liquidity creation through equity shares stimulates information acquisition about illiquid, information-sensitive assets.

Document Type

Article

Disciplines

Finance

DOI

10.2139/ssrn.5047094

Source

SMU Cox: Finance (Topic)

Language

English