Impatient trading, liquidity provision, and stock selection by mutual funds

Zhi Da*, Pengjie Gao, Ravi Jagannathan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

29 Scopus citations


We show that a mutual fund's stock selection skill can be decomposed into additional components that include liquidity-absorbing impatient trading and liquidity provision. We find that past performance predicts future performance better among funds trading in stocks affected more by information events: Past winners earn a risk-adjusted after-fee excess return of 35 basis points per month in the future. Most of that superior performance comes from impatient trading. We also find that impatient trading is more important for growth-oriented funds, and liquidity provision is more important for younger income funds.

Original languageEnglish (US)
Pages (from-to)675-720
Number of pages46
JournalReview of Financial Studies
Issue number3
StatePublished - Mar 2011

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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