Information Acquisition By Mutual Fund Investors: Evidence from Stock Trading Suspensions
Publication Date
11-1-2023
Abstract
Mutual funds create liquidity for investors by issuing demandable equity shares while holding illiquid securities. We study the implications of this liquidity creation by examining frequent trading suspensions in China, which temporarily eliminate market liquidity in affected stocks. These suspensions cause significant mispricing of mutual funds due to inaccurate valuations of their illiquid holdings. We find that investors actively acquire information about suspended stocks held by mutual funds, driving flows into underpriced funds. This information is subsequently incorporated into stock prices when trading resumes. Our findings suggest that mutual fund liquidity creation 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
