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Mutual funds (along with pension funds and other large institutional investors) move tens of billions of dollars into and out of various positions regularly. Sp
by skorgu 16y ago
Mutual funds (along with pension funds and other large institutional investors) move tens of billions of dollars into and out of various positions regularly. Speeding and simplifying those transactions reduces opportunity and transaction costs and (theoretically) benefits all holders of the fund.
- skybrian 16y agoAgain, that's the standard answer, but it's frequently repeated and never proven. I don't see it as anything more than conventional wisdom.
- grandalf 16y agoKeep in mind that we're talking about prices here. What is a stock price? If I put in an order to sell one share of GOOG for $1, would you start to believe that the market price of GOOG was $1 per share? A market price is only as valid as the degree of consensus. Increased liquidity means that there is a high degree of consensus about the current price. This means that one can feel additional confidence that one is getting a fair price. The main concept to think about here is an order book. Think about the psychology behind orders that are a ways away from the best price (both bid and ask). Those parties are willing to transact, but at a premium. In other words, they prefer to hold unless a sweet enough offer is made. Thus, for a very large order one has to pay that premium.
- artsrc 16y agoMost of the funds in the company I work at make position decisions once a day. Some only trade once a week. Liquidity intraday really adds nothing. The investors get a daily price, and they have to notify us they day before.