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managers perform some amount of liquidity transformation because their ability to pool trades and space transactions over time flattens the price-quantity schedule faced by their investors. In this paper, we use the cash holdings of mutual funds that invest in equities and long-
- 791KB
- Sergey Chernenko, Aditya Vikram Sunderam
- 63
- 2016
Liquidity transformation – the creation of liquid claims that are backed by illiquid assets – is a key function of many financial intermediaries. Banks, for instance, hold illiquid loans but supply investors with highly liquid deposits. Many asset managers provide similar liquidity services through open-ending.
Liquidity transformation, the provision to investors of liquid claims that are backed by illiquid assets, is a key function of many financial intermediaries. Historically, liquidity transformation has been performed primarily by banks, which hold illiquid loans but give investors liquid deposits.
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- 43
Aug 15, 2016 · The study proposes a novel measure of liquidity transformation: funds’ cash management strategies. The study validates the measure and shows that liquidity transformation by asset managers is highly dependent on the traditional and shadow banking sectors.
"Using a novel data set on the cash holdings of mutual funds, we show that cash plays an important role in how mutual funds provide liquidity to their investors. Rather than transacting in equities or bonds, mutual funds use cash to accommodate inflows and outflows.
We study liquidity transformation in mutual funds using a novel dataset on their cash holdings. To provide investors with claims that are more liquid than the underlying assets, funds engage in substantial liquidity management.
People also ask
What is liquidity transformation in asset management?
What is liquidity transformation in mutual funds?
Why is liquidity transformation important?
How does a fund manage its liquidity?
Does liquidity transformation affect asset illiquidity?
Are cash holdings a good measure of a mutual fund's liquidity transformation?
Banks: maturity mismatch is a good measure of liquidity transformation. Asset managers: liquidity transformation is more di cult to measure. Intermediaries atten price-quantity schedule faced by investors. Open-end mutual fund pool transactions costs across investors. In principle, can trade unlimited quantities at end-of-day NAV.
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