The Determinants and Implications of Mutual Fund Cash Holdings: Theory and Evidence

26 Pages Posted: 17 Sep 2006

Abstract

In this article, I examine the determinants and implications of equity mutual fund cash holdings. In cross-sectional tests, I find evidence generally supportive of a static trade-off model developed in this article. In particular, small-cap funds and funds with more-volatile fund flows hold more cash. However, I do not find that fund managers with better stockpicking skills hold less cash. Aggregate cash holdings by equity mutual funds are persistent and positively related to lagged aggregate fund flows. Aggregate cash holdings do not forecast future market returns, suggesting that equity funds as a whole do not have market timing skills.

Suggested Citation

Yan, Xuemin Sterling, The Determinants and Implications of Mutual Fund Cash Holdings: Theory and Evidence. Financial Management, Vol. 35, No. 2, Summer 2006, Available at SSRN: https://ssrn.com/abstract=929710

Xuemin Sterling Yan (Contact Author)

University of Missouri - Columbia ( email )

Robert J. Trulaske Sr. College of Business
427 Cornell Hall
Columbia, MO 65211-2600
United States
573-884-9708 (Phone)
573-884-6296 (Fax)

HOME PAGE: http://business.missouri.edu/yanx/

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