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Christoph Kaserer

is a full professor of finance at Technische Universität München (TUM). His area of expertise is corporate finance, banking, and asset management. Christoph published his research in leading international academic journals. He is also active as an expert for the German Government as well as for public and private institutions. Christoph is also a member of the Group of Economic Advisors at ESMA. Before joining TUM, he became Full Professor of Financial Management and Accounting at Université de Fribourg, Switzerland, in 1999. From 2005 to 2010 he was the Dean of TUM School of Management. According to recently published university rankings TUM School of Management is the top management school in Germany.

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Christoph Kaserer: How do Mutual Funds vs. ETFs Impact Stock Market Liquidity? Evidence form the German Market

Open-ended equity funds often engage in liquidity-motivated trading when they are facing cash in-/outflows. This paper assesses the impact of equity funds’ cash flows on overall stock market liquidity. A unique order volume-weighted spread measure considering the whole depth of the limit order book allows us more accurate measurement of stock market liquidity. In a sample of more than 3,000 trading days on the German stock market we find significant evidence that mutual funds’ cash flows improve stock market liquidity. This supports the previous theories about liquidity-motivated trading and liquidity preference of mutual fund managers. At the same time, no effect of ETFs’ net cash flows has been found on the stock market liquidity, which leads back to the mechanism of ETF’s creation and redemption process as well as the involvement of market makers. Furthermore, mutual funds’ contribution to the stock market liquidity has become stronger since the financial crisis in 2008-2009. In addition, we use two different approaches to assess the information processing ability of mutual fund managers and discover that liquidity contribution from mutual fund managers is driven by those with higher information processing ability.

Last modified: 2017.10.02.