Mutual fund trading and liquidity

Thesis (S.M.)--Massachusetts Institute of Technology, Sloan School of Management, 2010.Cataloged from PDF version of thesis.Includes bibliographical references (p. 52-56).This thesis uses equities holdings snapshots of mutual funds to study their trading patterns. Using quarter and semi-annual holdings of mutual funds, I am able to extract a main trading component with the application of the asymptotic principle component method. This component demonstrates short term predictability of returns over three months, suggesting overall mutual fund trades contain a liquidity trading component that temporarily pushes up stock prices that reverse over the next few months. I also demonstrates that this particular type of liquidity risk is related to other measures of liquidity risk. Therefore, this trading component can be a useful building block in creating a comprehensive measure of liquidity.by Ka Yin Kevin Chu.S.M