Purpose – The purpose of this study is to examine the market-timing ability of mutual fund flows and how fund investors conduct asset allocation in response to market volatility. Design/methodology/approach – The paper compares the abnormal returns of net inflow funds with those of net...

Unconditional alphas are biased when conditional beta covaries with the market risk premium (market timing) or volatility (volatility timing). We demonstrate an additional bias (overconditioning) that can occur any time an empiricist estimates risk using information, such as a realized beta,...

We develop a structural credit risk model to examine how the interactions of liquidity and default risk affect corporate bond pricing. By explicitly modeling debt rollover and by endogenizing the holding costs via collateralized financing, our model generates rich links between liquidity risk...

As witnessed during the 1997/98 Asian financial crisis, the dependency on short-term foreign capital for long-term investment made the region vulnerable to the sudden reversal of capital inflows. Rapid capital outflows not only caused the collapse of the financial system but also a sharp...

This paper investigates the relationship between sovereign and bank CDS spreads with reference to their ability to convey timely signals on the default risk of European sovereign countries and their banking systems. By using a sample of six major European economies, we find that sovereign and...

Sub-Penny Trading (SPT) is a form of dark trading that allows traders to undercut displayed liquidity. We distinguish between SPT that is queue jumping (QJ) and mid- crossing (MID) and find that QJ is higher for NASDAQ than NYSE stocks. Consistently with Buti, Rindi, Wen and Werner (2013), QJ is...

Over-the-counter (OTC) stocks are far less liquid, disclose less information, and exhibit lower institutional holdings than listed stocks. We exploit these different market conditions to test theories of cross-sectional return premiums. Compared to premiums in listed markets, the OTC illiquidity...

We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. At least 30% of the value mutual fund managers add can be attributed to the firm's role in efficiently allocating capital amongst its mutual fund managers. We find no evidence of a...

More and more investors apply socially responsible screens when building their stock portfolios. This raises the question whether these investors can increase their performance by incorporating such screens into their investment process. To answer this question we implement a simple trading...

This paper investigates the returns and flows of German money market funds before and during the financial crisis of 2007/2008. The main finding of this paper is that, in liquid times, some money market funds (MMF) enhanced their returns by investing in riskier assets. By doing so they...